Super still relatively simple

20 Apr 2013

By David Raits

If recent media speculation is right, Simon Crean got his way and the changes to superannuation announced by the Government are nowhere near as draconian as some feared they may have been.

Crean had been very vocal in urging his colleagues to avoid retrospectivity in relation to the changes, and according to Treasury, for all but an estimated 16,000 people his wish has been granted - or has it?

The unlucky 16,000 are those individuals that Treasury estimate earn more than $100,000pa on their assets invested in a pension paying superannuation fund. These people have wisely accumulated investments in the superannuation system and upon reaching retirement age have commenced a pension, which up until now has benefitted from a 0% tax rate on the earnings generated on those assets.

The problem with the Treasury analysis is that it fails to consider the thousands more who, in good faith, have already invested substantial sums in the superannuation system and are on track to have assets in retirement that are high enough to generate more than the $100,000 in earnings. As many haven't yet reached retirement age, they are not being counted. These people may now face taxation on part of their earnings whereas under the old arrangements this would not have been the case.  It could be argued that for many, retirement plans will now need to be recalibrated and there may not be enough time to bridge the gap, no matter how you spin it that is retrospectivity.

Many commentators believe that the changes are reasonable. The retrospectivity argument can also be countered to a certain extent by the fact that a good proportion of the larger superannuation balances within the system were accumulated in the years prior to 2006, when the taxation regime at retirement (i.e. pensions were taxed, lump sum taxes applied, and reasonable benefit limits applied for high income earners), was a lot worse than this!!

For a good overview of the reasons why superannuation still makes sense follow this link for a short video by my colleague, Phillip Gillard.

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