Is the tax system burdened by rising pensions as the population ages, loss of tax revenue due to concessions, or supporting high-income earners?
According to Ms Pauline Vamos CEO of Association of Superannuation Funds of Australia (ASFA), “For some time now, we have expressed concern that a number of the claims made about the cost and allocation of superannuation tax concessions are incorrect or misleading. However, they have been repeated so often that they have almost become folklore. Correct information is the first step in good decision making, which is why it is so important that we get the facts right before we start these discussions.”
The Association of Superannuation Funds of Australia (ASFA) has released a report that busts some of the most common myths cited when it comes to superannuation tax concessions.
As reported in Professional Planner here are some of the myths –
MYTH: Superannuation is not helping reduce the government’s spending on the Age Pension
FACT: Super saves the government $7 billion in Age Pension expenditure annually, and these savings will only increase as the system matures
Superannuation is boosting incomes and providing a lifestyle in retirement that is better than that which can be sustained on the Age Pension alone. Around 32 per cent of those aged 65 in 2013 were fully self-funded in retirement, up from 22 per cent in 2000. We project this number will rise to 40 per cent by 2023.
MYTH: Superannuation tax concessions cost the budget $30 billion annually – more than the total spending on the Age Pension
FACT: The actual cost of tax concessions is around $16 billion a year
When you take into account the savings the government makes on the Age Pension as a result of super, and the impact of behavioural change (people shifting money from one tax-effective vehicle to another) that would occur if super tax concessions were removed, a more accurate estimate would be around $16 billion a year.
MYTH: The majority of government support for retirement goes to high-income earners
FACT: Financial assistance for retirement provided by the government is broadly comparable across the personal income tax brackets
When both the Age Pension and tax assistance are added up across a lifetime, the average taxpayer benefit is around $300,000 across all tax brackets as a contribution by the government to their retirement. The main difference between is the timing and vehicle through which it is delivered. For example, the full Age Pension for a single person currently is $22,365 a year, while tax concessions for super are for smaller annual amounts but accrue to individuals prior to age 65.
MYTH: The bulk of tax concessions for superannuation contributions go to high-income earners
FACT: The bulk of tax concessions for superannuation concessional contributions go to middle-income earners
Tax concessions applied to superannuation concessional contributions are not significantly skewed towards high-income earners, and, in fact, support the bulk of the working community to save for their retirement. ASFA analysis of data from 2011/12 found that around 75 per cent of the tax concessions applied to contributions went to those paying either of the (then) middle income marginal tax rates of 30 per cent or 38 per cent: those earning between $37,000 and $180,000 a year.
MYTH: The most important tax concessions received by high-income earners relate to superannuation
FACT: High-income earners get the most benefit from concessional capital gains tax treatment, negative gearing and exemptions for the family home
The bulk of the wealth of high-net-worth individuals is in the form of shareholdings or property, both residential investment properties and commercial real estate. Around $360 billion is held in superannuation by those with more than $1 million in super. This is just over 20 per cent of the $1.6 trillion investable assets held by high-net-worth individuals.
For most high-net-worth individuals, tax arrangements relating to capital gains, negative gearing and the family home are likely to have more impact on the achievement and maintenance of wealth than superannuation tax concessions
MYTH: Only high-income earners make salary sacrifice contributions
FACT: Many middle-income individuals make salary sacrifice contributions
Only around 35 per cent of employees with incomes above $150,000 a year make salary sacrifice contributions. Around 85 per cent of salary sacrifice contributions relate to employees with incomes below $150,000 a year. Over half a million Australians earning between $40,000 and $80,000 a year make salary sacrifice contributions.
For more myths, see the full article.
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