Inequity of Superannuation savings for those who have saved well

Originally posted by squidd: ↑

Hi Infose,

I agree in part with your comments. Super is a good investment vehicle, but it's not the only one that should be considered IMO. If your super balance is already going to exceed $1.6m+ via employer contributions and earnings, what are the benefits and costs of contributing extra into super vs holding that money in a different structure?

With today's rules, earnings on accumulation phase balances are taxed at 15%, and earnings on pension phase balances above the $1.6m transfer balance cap are also taxed at 15%. IMO over time super concessions will be wound back further and further, as you have hinted at also. The problem is that once you invest money into super at age 30, you can't get it back out until who knows when in the future, even if the Government changes the super rules for the worse. You can't say, "sorry I'd like that cash back now because you've changed the rules and it's less attractive."

I think you've missed an important point regarding your comment below;

"Government may fiddle with the incentives but even if all of them come to disappear then super would not be treated as differently from any personal portfolio of assets."

The above may be true from a taxation perspective, but what about an access perspective? There are already limits on when super can be accessed, what will these limits look like in 20 years as people live even longer? Will a condition of release be extended to 70 years of age? 75? What about how much of your super can be accessed in a given year? There's already max limits placed in TRIS's of 10% of your member balance. As the Government tries to ensure people live off their super as long as possible, what's to stop them putting max withdrawal limits on account based pensions as well? This is the issue, legislative risk because the Government sees super as a social welfare replacement, they do not see super as our money for us to use as we please.

Here's an example of an investment structure outside of super. Investing via a company. The company pays 30% tax on it's income, but also receives franking credits from investments so effectively no tax is payable by the company. The investments are left in the company for 15 years. The company ends up holding $2m in investments earning 5% p/a or $100k. A husband and wife retire from work at age 50, the company then starts paying $100k in dividends to it's shareholder, a discretionary trust. The trust then distributes $50k franked dividends each to the husband and wife. Due to franking credits being distributed to the husband and wife, they pay an effective tax rate of 19.5% on the $50k cash they both receive. This strategy effectively pushes back the husband and wife's investment income until they have no wages/other income. They also have access to capital via credit loan accounts that will have built up every time they deposited cash into the company to invest in the company's name. This strategy works even better if there are people other than the husband and wife to distribute the investment income from the company to. The point is that you can reduce tax in other ways while still making sure you can get to your money whenever you please, and not be beholden to the age the Government sets in the Super legislation. Most importantly, this couple effectively retired at 50 when they actually wanted to, and didn't have to wait until the age the Government sets.

Cheers!

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What about primitive structure... buy few properties?