Are you better off investing your surplus funds into your residence than into Superannuation?

With the Labor Party announcing a week ago its intention to save an estimated $59 billion by abolishing cash imputation credits on dividend income, those saving for, or in  retirement,  might justifiably question the wisdom of putting their surplus funds into superannuation.

Labor regrets that Aged Pensioners  with share assets, may be caught in the cross-fire, but as yet there is no policy to compensate them for what could be the loss of a few thousand dollars per annum in non-pension income.

Labor’s real target is the nearly 600,000 SMSF (Self-managed Super Funds) controlling nearly $700 billion in assets, for an estimated 1.13 million members with an average account balance of A$616,000, not the $1.1 million average fund balance, according to Trish Power, of the website Super Guide.  It should also be noted that according to ATO data at July 2016, nearly half (42.8%) of these funds had balances less than $500,000!

https://www.superguide.com.au/smsfs/smsfs-lead-the-super-pack-again

The loss of investment income will be a massive blow for self-managed super funds whose popularity has soared to 29.6% of the A$ 2.3 trillion (A$ 696.7 billion) pool of Australian superannuation funds, driven by a need to curb excessive management fees, poor performances, and a desire to have a say in how their money is invested.

Philosophically, Labor  prefers retirees to choose the more egalitarian option of receiving an income stream in retirement, than allowing them to horde a lump-sum themselves to invest for their future financial needs.  Reduction of dividend income will certainly compromise the appeal of SMSFs by greatly reducing returns. It will particularly hurt those who like to live as far as possible on their dividend income, to limit draw-down of their capital.

Whether the ire of the 1.13 odd members who depend on SMSFs will be sufficient to deny Labor victory at the polls, against the voting power of the those influenced by a campaign based on the politics of envy, is far from certain.

I do hope however, that politicians in their campaigning will refrain from trotting out inaccurate or misleading statistics for their own advantage.

One Labor slogan that I consider misleading, is the claim that because the income earned by a self-managed fund is not  included in the individual’s taxable income, it is tax free.

The truth is that taxation on superannuation is taxed in a different concessional way to income from personal exertion, to reward those who can limit their future dependence on government subsidies in retirement.   But tax is still paid.

As I understand it, contributions are taxed,  earnings may still attract tax, and it is taxed at retirement when converted to an income stream.

Imputation credits are granted by the Tax Office to avoid double taxation of dividends. Companies pay shareholders out of earnings that are taxed, and it is simply unjust if the government then claims further taxation income from shareholder recipients.

This particular measure may never be implemented, but with a pool of $2.3 + trillion in superannuation lying idle year after year, retirees can only fear more attempts by governments to plunder their savings at a time when they are living longer and need more not less to see them out.

I am certainly not qualified to give investment advice, but I would like to remind retirees that they have a vote, and are able to adjust their assets in the most profitable way. This may be to add to the value of the family home, an asset which appreciates with time, and unlike property investments, attracts no capital gains tax when sold.



Categories: Community Issues, Financial News

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