..



.

Business News

Here's a radical reform that could keep super and pay every retiree the full pension

  • Written by Kevin Davis, Professor of Finance, University of Melbourne
image

The government’s retirement income review[1] is being told our current tax and benefit treatment of retirement incomes is a mess[2].

Much of financial planning industry is devoted to structuring affairs to maximise access to the age pension.

The means test and other requirements that control access to it are a bureaucratic nightmare and expensive to administer. There are ongoing fights about the taper rate[3] at which access shrinks with income. Debates rage about whether taxpayer support goes where it should.

Then-treasurer Peter Costello’s 2006 removal of tax on super fund earnings[4] in the retirement phase has proved to be misguided.

Read more: Why pensioners are cruising their way around budget changes[5]

The scale of the benefits to wealthy households has become so inequitable it has necessitated a range of complicated administrative measures to impose limits[6].

Under our dividend imputation system, government corporate tax revenue is cannibalised as super funds in the tax-free retirement phase get “refunds[7]” of the tax they haven’t paid on the dividends delivered to them.

A budget neutral proposal…

I am proposing a radical reform involving

  • introduction of a universal (non-means-tested) full age pension

  • restoring tax on the income of super funds in the retirement (pension) phase

  • other tax changes, including removing the seniors and pensioners tax offset, and a different tax scale for those in receipt of the pension.

The changes I propose could mean the only likely losers will be those with retirement super balances currently generating tax-free income in the region of A$100,000 per year or more.

Squeals would be heard, but there would be relatively few squealers and they might be unlikely to gain much sympathy.

The change could be budget-neutral.

Read more: 5 questions about superannuation the government's new inquiry will need to ask[8]

Under the proposal retirement would trigger:

  • the automatic award of the full age pension

  • the conversion of the retiree’s super fund(s) into retirement mode where earnings within the fund(s) would be counted as personal income for tax purposes.

The tax scale for age pension recipients would also need to be adjusted, and the seniors and pensioners tax offset[9] removed, in order to avoid windfall gains or losses and make the change budget neutral.

…that could make retirement simpler

At one stroke, all of the complexities involved in applying for and checking eligibility for the age pension would vanish.

Incentives to maintain large balances in super after retirement for tax-preferred estate planning would no longer be as attractive.

Introducing a universal non-means-tested full pension would increase budget outlays by about $30 billion, but this would be offset by increased tax revenues under the changes proposed which would leave most retirees no worse off in after-tax terms.

This is calculated using ball-park figures of around 4 million people of pension eligibility age with 1.8 million currently getting the full pension, 1.4 million a part pension, and 0.8 million on no pension.

Most retirees would be no worse off

Existing full pensioners would be unaffected.

The average part-pensioner could be left in the same after-tax income position by the tax scale changes which see the government recouping in extra tax revenue what it lost in extra pension outlays.

Self-funded retirees would receive a windfall gain of the full pension amount, but part of that would be offset by taxation of super income.

With proper adjustment of the tax rates the changes could mean that only those with very high income from super ($100,000 or more) would be adversely affected.

Unforseen consequences

In reality, nothing is that simple. Incentives for choice of retirement age would need consideration, as would the implications of tax scales for households as well as individuals.

Tax arbitrage involving imputation credits could destroy some of the expected budget revenues – suggesting a need to at least consider removing the rebates for unused tax credits[10].

Read more: It's hard to find out who Labor's dividend imputation policy will hit, but it is possible, and it isn't the poor[11]

That shouldn’t be a deal-breaker for most retirees because they would be no worse off, but it could meet opposition from investors with other ways of lowering their tax rate, as we saw in the last election[12].

But my proposal, albeit radical, appears to be feasible and has the potential to abolish much of the bureaucracy and costs associated with administering the age pension and much of the tax complexity and regulations governing superannuation.

Rather than fiddling at the edges, we ought to be considering wholesale reform.

Professor Davis was a member of the government’s 2014 Financial System Inquiry[13].

Authors: Kevin Davis, Professor of Finance, University of Melbourne

Read more https://theconversation.com/heres-a-radical-reform-that-could-keep-super-and-pay-every-retiree-the-full-pension-131289

Digital Agency

Business Daily Media Business Development

Accor and Visa form global partnership

Accor, a world-leading hospitality group, and Visa (V: NYSE), the global leader in digital payments, yesterday (the 18th of February) announced a global partnership to bring new payment expe...

Media Release - avatar Media Release

Cruise Guru Celebrates CLIA Award Win with Offer for Australian Travellers

Leading Australian cruise agency, Cruise Guru, has been named ‘2019 Online Cruise Agency of the Year’ at the 19th Annual Cruise Industry Awards hosted by Cruise Lines International Associati...

Rhea D'souza - avatar Rhea D'souza

Exciting Things About Sydney

Sydney is one of Australia’s largest cities that boasts a population of over 4 million people. It is a city that is famous for its picturesque views, multicultural people, superb weather, ...

News Company - avatar News Company

Accor announces new partnership with Grab to help members Live Limitless

Accor has announced a new strategic partnership between its new lifestyle loyalty programme, ALL - Accor Live Limitless and South East Asia’s leading super app, Grab. The deal brings toget...

Accor Pacific - avatar Accor Pacific

Upgrading to Deep Pocket Sheets

So, you have this amazingly comfortable bed that has a built-in topper and you are struggling to find the right bedding. You need to look for a sheet called deep pocket sheets or mega fi...

News Company - avatar News Company

Food you need to try in Beijing

Beijing is a beautiful and interesting destination for any kind of traveler. However, foodies will find a new heaven and will be able to try out tasty, flavorful and sometimes very special...

News Company - avatar News Company

Business Daily Media Business Reports

Di Jones real estate recognises high achievers

Di Jones celebrated its outstanding performers on Saturday (24 February 2018) evening at the Di Jones Real Estate Annual Awards.                               The bla...

Helen Hull - avatar Helen Hull

Eclipse Travel Expands Operations to New Zealand

Eclipse Travel, specialists in key adventure destinations such as Antarctica, the Arctic, Africa and Latin America, have announced today their expansion of operations to ...

Yvonne Kong - avatar Yvonne Kong

How medical professionals can benefit from an overall wealth management solution

As a health care professional, you have made it your life's work to focus on the care and health of the general public. While this kind of work can be extremely rewarding...

News Feature Team - avatar News Feature Team

Why Pinterest Should Be Part of Your Marketing Strategy

Pinterest is a growing social media platform that can deliver significant traffic to your website and new followers to your brand. With it’s steady growth and outrageous ...

Greg Nunan - avatar Greg Nunan

The top reasons why gyms fail

Steve Grant is a Business Coach and Founder of GymHub.com.au   Every month thousands of new trainers walk out of their 6-month course with the qualifications needed ...

Steve Grant - avatar Steve Grant

WHITE LABEL NOBA’s Winter 2016 season: Earth + Country

Taking cues from the warm winter colours of tobacco and caramel, and combining them with the strength of navy and the embracing lightness of whites and creams; and then...

Kath Rose - avatar Kath Rose

Former Etihad boss brings substantial event insight to PMY Group Board

Paul Sergeant PMY Group, the architects of the digital insurgency occurring at major venues across Australia and New Zealand, are delighted to welcome 35 year even...

Annie Konieczny - avatar Annie Konieczny

More training for coffee making than property sales: REINSW

Sydney 9 May 2016. An overhaul of education and training standards for the real estate profession must take place to help prevent illegal activities, according to the Rea...

Helen Hull - avatar Helen Hull