Wednesday, May 09, 2007
Retrospectively doubling the superannuation co-contribution, and other perversities
I’m an always-read-the-fine-print kinda guy. Which has its downsides, believe it or not. In matters of intimate relationships, my instinctive “Show me your complete warranties and disclaimers and I’ll show you mine” mindset is not exactly conducive to getting any.
But that’s a topic for another day. Post-Budget, I find my read-the-fine-print instinct shattering a small gesture towards my retirement I had planned to make pre-30 June this year.
I am 42 going on 43, and currently have less than $5,000 in superannuation savings (and almost no other assets, including no real estate, car, or shares). “Just put this bleak fact as far as possible out of your mind” would be, I think, a reasonable strategy in the circumstances. But no – little, middle-aged heroic me decided a while ago, and until yesterday, to make a $1,000 voluntary, post-tax superannuation contribution this financial year. I’d calculated that I was going to earn just less than the $28,000 annual income, under which the government makes it maximum co-contribution of a nominal $1,500, or $1050 in real terms, as explained below.
It was not going to make a huge difference anyway, and I could certainly use the $1,000 in the short or medium term, as opposed to locking it up until 2024, but I nonetheless thought, until yesterday, that the fiscal stars had more or less aligned for me, as a single Xer male, as much as they were ever going to.
When I first read this story – a budget leak that no other media seems to have got hold of – in yesterday’s Oz, I thought that the fiscal stars had in fact doubly aligned for me – the low-income superannuation co-contribution was to be doubled!
Enter the fine-print. Which here overlaps with my long experience as an Xer, that there has not been a single government spending or taxation policy change that has worked to other than to my detriment in all my adult life, and this is unlikely to change. In fact, the doubling up was only for low-income earners people who made voluntary superannuation contributions last financial year (i.e. the year ending 30 June 2006).
To call this retrospectivity perverse is an understatement, yet none of the three* print media outlets that today ran the once-off doubling-up as a story have commented in this aspect, or even highlighted the fact. Last night’s ABC TV 8pm Budget wrap-up erroneously even said that the once-off doubling-up was for “this year”. (Incidentally yet again confirming the ABC’s status as sheltered workshop run by slack boomers for greedy boomers – neither of which are going to be bothered with the details of loose-change-amount stories, other than when loose-change turns up as a simple $500 cash bribe to millionaire over-60s.)
Some might say that the retrospective aspect, while puzzling from a policy point of view, doesn’t actually change (for better or worse) my hitherto-planned superannuation co-contribution. Which is true in one sense, but certainly not in my fine-print combing mind. I can only assume that the retrospectivity is designed to trick non-fine-print-type people into making a voluntary superannuation contribution in this, or future financial years. So I won’t touch it with a bargepole.
Finally, just to be clear about the economics underlying superannuation co-contributions. For someone earning between $25,000 and $27,999 this financial year, the $1,000 they may be thinking of putting into super in order to attract a $1,500 co-contribution gets taxed twice before it hits their super account: at 30% PAYE and a further 15% super-specific tax. Therefore the first $450 of the supposed $1,500 co-contribution is your money anyway. Basically, the low-income co-contribution scheme sucks, then.
If you are a high-income earner ($75k-$100k), OTOH, you’re entitled to a very different scheme of what is in substance a government co-contribution of about $850** for each $1,000 volunteered. Here, you can put pre-tax money into super to your heart’s content, more or less – but only if you’re a boomer. Boomers born on or before 30 June 1962 have the super triple whammy of: (i) earlier access (age 57 tops but 55 for most), (ii) being closer than Xers to retirement day in any event (and so carrying less legislative and investment risk), and (iii) being able to tip $100k pre-tax into super for at least one year pre-2012, while for everyone else, the pre-tax limit on voluntary superannuation contributions is $50k. And further, those over 60 and still working can launder their ABC-comfort-level incomes to pay no tax, by salary-sacrificing 100% of their income (under $100k) into “new” super, while drawing on tax-free “old” super to actually live on.
* According to a Google News search this morning for "superannuation co-contribution".
** (Update) Does not include 15% superannuation contribution tax.
I’m an always-read-the-fine-print kinda guy. Which has its downsides, believe it or not. In matters of intimate relationships, my instinctive “Show me your complete warranties and disclaimers and I’ll show you mine” mindset is not exactly conducive to getting any.
But that’s a topic for another day. Post-Budget, I find my read-the-fine-print instinct shattering a small gesture towards my retirement I had planned to make pre-30 June this year.
I am 42 going on 43, and currently have less than $5,000 in superannuation savings (and almost no other assets, including no real estate, car, or shares). “Just put this bleak fact as far as possible out of your mind” would be, I think, a reasonable strategy in the circumstances. But no – little, middle-aged heroic me decided a while ago, and until yesterday, to make a $1,000 voluntary, post-tax superannuation contribution this financial year. I’d calculated that I was going to earn just less than the $28,000 annual income, under which the government makes it maximum co-contribution of a nominal $1,500, or $1050 in real terms, as explained below.
It was not going to make a huge difference anyway, and I could certainly use the $1,000 in the short or medium term, as opposed to locking it up until 2024, but I nonetheless thought, until yesterday, that the fiscal stars had more or less aligned for me, as a single Xer male, as much as they were ever going to.
When I first read this story – a budget leak that no other media seems to have got hold of – in yesterday’s Oz, I thought that the fiscal stars had in fact doubly aligned for me – the low-income superannuation co-contribution was to be doubled!
Enter the fine-print. Which here overlaps with my long experience as an Xer, that there has not been a single government spending or taxation policy change that has worked to other than to my detriment in all my adult life, and this is unlikely to change. In fact, the doubling up was only for low-income earners people who made voluntary superannuation contributions last financial year (i.e. the year ending 30 June 2006).
To call this retrospectivity perverse is an understatement, yet none of the three* print media outlets that today ran the once-off doubling-up as a story have commented in this aspect, or even highlighted the fact. Last night’s ABC TV 8pm Budget wrap-up erroneously even said that the once-off doubling-up was for “this year”. (Incidentally yet again confirming the ABC’s status as sheltered workshop run by slack boomers for greedy boomers – neither of which are going to be bothered with the details of loose-change-amount stories, other than when loose-change turns up as a simple $500 cash bribe to millionaire over-60s.)
Some might say that the retrospective aspect, while puzzling from a policy point of view, doesn’t actually change (for better or worse) my hitherto-planned superannuation co-contribution. Which is true in one sense, but certainly not in my fine-print combing mind. I can only assume that the retrospectivity is designed to trick non-fine-print-type people into making a voluntary superannuation contribution in this, or future financial years. So I won’t touch it with a bargepole.
Finally, just to be clear about the economics underlying superannuation co-contributions. For someone earning between $25,000 and $27,999 this financial year, the $1,000 they may be thinking of putting into super in order to attract a $1,500 co-contribution gets taxed twice before it hits their super account: at 30% PAYE and a further 15% super-specific tax. Therefore the first $450 of the supposed $1,500 co-contribution is your money anyway. Basically, the low-income co-contribution scheme sucks, then.
If you are a high-income earner ($75k-$100k), OTOH, you’re entitled to a very different scheme of what is in substance a government co-contribution of about $850** for each $1,000 volunteered. Here, you can put pre-tax money into super to your heart’s content, more or less – but only if you’re a boomer. Boomers born on or before 30 June 1962 have the super triple whammy of: (i) earlier access (age 57 tops but 55 for most), (ii) being closer than Xers to retirement day in any event (and so carrying less legislative and investment risk), and (iii) being able to tip $100k pre-tax into super for at least one year pre-2012, while for everyone else, the pre-tax limit on voluntary superannuation contributions is $50k. And further, those over 60 and still working can launder their ABC-comfort-level incomes to pay no tax, by salary-sacrificing 100% of their income (under $100k) into “new” super, while drawing on tax-free “old” super to actually live on.
* According to a Google News search this morning for "superannuation co-contribution".
** (Update) Does not include 15% superannuation contribution tax.
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You are wrong about your contribution being taxed twice. If you're contributing from after tax dollars, (i.e after being taxed at 30%) then there is no further 15% tax when it goes into your superannuation fund.
The 15% contribution tax only applies to contributions made via salary sacrifice, where you would not pay the income 30% tax.
As far as the co-contribution is concerned, you're absolutely right. I've been posting, appalled with this restrospective doubling which makes it useless for anyone hoping to take advantage of it now. A wasted opportunity, but you won't see the media critisizing because there are lots of low income people who did contribute last last financial year and will benefit. you won't see the super industry complain because they are getting an extra $1billion heading their way....it's only those who missed out or don't like government to waste money without some return for taxpayers that care.
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The 15% contribution tax only applies to contributions made via salary sacrifice, where you would not pay the income 30% tax.
As far as the co-contribution is concerned, you're absolutely right. I've been posting, appalled with this restrospective doubling which makes it useless for anyone hoping to take advantage of it now. A wasted opportunity, but you won't see the media critisizing because there are lots of low income people who did contribute last last financial year and will benefit. you won't see the super industry complain because they are getting an extra $1billion heading their way....it's only those who missed out or don't like government to waste money without some return for taxpayers that care.
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