Bruce Brammall: After years of government tinkering, has our superannuation system just got even better?

Here’s how you should be looking at superannuation: It’s an awesome, legal, tax-minimisation scheme to help you save for your retirement. Your retirement cash is ostensibly invested in the Cayman Islands or Bermuda, keeping dibs on a poolside deck chair for your arrival. Any money you put into super is taxed lightly on the way in. It’s taxed even more lightly on what it earns. And then it is completely tax-free (for most) in retirement. That has always been superannuation’s base principle. And will always be. But the rules seem to be in a constant state of change. Governments can’t help tinkering. And they’re doing it again. Spend it, baby! What are they concerned about? What is the Government trying to fix now? That we’re passing our super on to our kids. That we’re dying with too much in super. That we’re not spending our super to enjoy a better retirement. Why are we doing that? The first two are for very sound tax reasons, but let’s leave those smarties to the side for today. The Government is trying to tackle that in other devious ways. Last month, Treasurer Jim Chalmers again raised his concern about our fear of spending in retirement. Understandably, we are concerned about running out of money. Let’s say someone retires at 65 with $500,000 in super. How much can they spend each year, allowing them to spend their last dollar an hour before they take their last breath? Problem! We don’t know when we’re going to die. Will we die early, hit the rough average, or make it into our 90s, or later? Who knows? So, we become naturally cautious about our spending. We want to reduce our spending to make sure we have enough in case we beat the averages. In the above example, if modelling showed we could spend $60,000 a year and, with the government age pension, our super would run out at, say, age 90, we would still find ways to reduce our spending further, fearing we could live longer. New products, solutions The industry was told, about the middle of last decade, to dream up some new products that might help deal with the problem. Nothing happened for a long time. The government made its displeasure known. That got some action. And some product providers came up with some pretty cool ideas that would work. For some people. These include products such as guaranteed lifetime income streams from super that got government exemptions to allow for better treatment of those income streams for Centrelink government age pension dollars. But uptake has been slow. Because while the guaranteed income stream and more government age pension are some upsides, the downside is loss of access to capital and, if you pass away too early, a feeling that the kids will miss out. Give more ground Chalmers announced last month that the Government is prepared to concede in some further areas to try to deal with concerns about how income streams could be treated. They will change the legislation to allow for “money-back guarantees”, so people will be able to be sure the kids will get something when they die. If the product providers were to do that, the trade-off would likely be a lower income stream. Will punters accept a lower income stream to guarantee the kids get some of their super? Maybe. Chalmers also conceded a few other changes were required, including fairer treatment for couples entering these products. Give ’em an education They are also going to pump some money into some education! (Shouted about this for so many years, I eventually gave up.) The Australian Securities and Investment Commission’s Moneysmart website will receive new calculators and resources to help punters understand the different options for income in retirement, including how a Centrelink pension works with other income streams. This is not well understood by those entering retirement. Some people who start retirement with too much by way of assets or income will eventually get a Centrelink pension as they spend down their assets. And it will increase the more that is spent. There was a time, up until about seven years ago, that Australians groaned when changes were announced to superannuation, as all decisions seem to make super less appealing. In recent years, however, most decisions seem to be to improve the system. Bruce Brammall is the author of Mortgages Made Easy and is both a financial adviser and mortgage broker. bruce@brucebrammallfinancial.com.au