superannuation

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Superannuation: an incentive to save or upper-class welfare?

Superannuation reform – how boring, right?

I suspect you aren’t aware of this fundamental loophole though. Consider this. Currently, the Australian superannuation system allows an individual who has (a) reached 60 years of age and (b) decided to permanently retire to simply withdraw all of their funds from super – completely tax free – and then to splurge it all on whatever they like. It’s important to note that this amount could have been just a few thousand dollars or, alternatively, many millions and that despite the lump sum withdrawal ‘belonging’ to the individual, a large part of it would have been brought about through the subsidised nature of Australia’s superannuation framework. Here’s the real kicker though: having enjoyed a period of superfluous spending – potentially with millions of dollars – that same individual, provided that they were now aged 67 or older, would then be eligible to receive a full aged pension (and its many associated ancillary benefits) courtesy of the federal government for the rest of their life as long as they didn’t earn more than about $3,952 in a year (from interest on their now non-existent savings!) or have greater than $192,500 in assets, excluding their home. Does that sound reasonable to you?

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Taxation of Superannuation

Professor John Freebairn

By Professor John Freebairn

 

Superannuation is a form of remuneration and labour cost, and it is a form of saving current income for future consumption in retirement. In terms of equity and efficiency, it is desirable that the taxation of superannuation be similar, if not identical, across different forms of labour remuneration and across different forms of long term saving.

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