The cold hard facts on super

By Leith van Onselen

Please find above an interesting short video from the Australian Taxation Office (ATO) showing the proportion of people with superannuation by income bracket and age, how much they hold, how much they contributed last year, amongst other things. The information is based on the ATO’s 2010-11 data.

Call me cynical, but after watching the video I couldn’t help but feel that superannuation is mostly for the top ~20% of Australians by income/wealth, given that:

  • the bottom 48% of people with super accounts hold less than $20,000;
  • 21% have balances between $20,001 and $50,000;
  • 14% have balances between $50,001 to $100,000;
  • 10% have balances between $100,001 to $250,000;
  • 4% have balances between $250,001 to $500,000; and
  • 3% have over $500,000 in superannuation.

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Comments

  1. I agree that’s a silly video. But compulsory super started in 92, once people who entered the work force post 92 retire we will see are much more fairer distribution of balances will we not? So why bother posting..

  2. It is an inconvenient reality that all these fandangled subsidised superannuation schemes mostly help the people who could save anyway, and do nothing for those for whom the problem is that they cannot save, because they have no discretionary income after mortgage repayments or rent payments are deducted.

    Furthermore, the great “housing is wealth” Ponzi lunacy merely increases the number of people who WON’T have a house at all when they reach retirement age, while far more of those that DO, won’t have OTHER investments.

    Give me the “affordable housing and healthy levels of discretionary income” economic model any day.

    • “and do nothing for those for whom the problem is that they cannot save, because they have no discretionary income after mortgage repayments or rent payments are deducted. ”

      Phil, Super is paid by the employer and is deducted and paid intoa fund before any employee can get their hands on it so it has nothing to do with discretionary income or employees spending of their salary/wages or their saving ability.

      • And you don’t think the requirement of an employer to pay into a super fund for his employees, reduces wages?

        Why don’t we just get employers to pay for everything everyone ever could want for society and the economy, if they are a truly bottomless source of funding and there are no trade-offs to mandatory payments required of them.

        • Phil
          In the majority of cases no it does not reduce wagesaccording to business groups it just adds to their costs. I agree it might certainly affect the higher paid who have ‘salary packages’ which includes the super.

          Regarding your second para you are of course making a humourous comment aren’t you.

      • Anton, it is not true that super doesn’t depend on saving ability. We are here since 2002 and we saved almost 2/3 of our wages for superannuation. We earned below in average below $100000 together and our super now turned out to be in the upper range, where the wealthiest are. We are not wealthy, we don’t even have a car, but I was afraid to go on Centrelink support at any stage of our life, so we were saving. We saved for our retirement with the intention never to beg for social help. But we are living very simple life, not as most other people, and we are not consumerist. Saving is good and makes you feel independent.

        Most of our friends have a couple of real estate investments each of them, because they believe that the government will never give them back their superannuation. But they have debt, we don’t. Who is in a better position? The future will tell us, but I guess we are in a safer position.

        • Lori
          I agree that balances will obviously increase with added savings to super in addition to the basic 9% of salary. But it is not correct to say super does nothing for low paid workers who cannot save from their after tax income. Super in a way is a method of forced savings for the low paid and gives them a super balance they would not have had had super not been in existance.

          • The 15% tax contribution on low income workers is unfair. absolutely having in mind that the income in the upper tax thresholds are subsidized up to 32% tax discount. This is so unfair, it is even laughable. But no one is complaining in this country, which means everyone is happy. Then why changing the tax law?

        • Lori
          I agree.
          I think there are a lot of green-eyed monsters when it comes to super.
          My super balance is in the top 3% too.
          Over half the balance is voluntary contribution (i.e. after paying tax on earnings via the normal tax brackets outside of super).
          Some of the remainder incurred super surcharge on the way in (my income in general has always been way below super surcharge level but I copped the surcharge a couple of times due to high returns from ASX).

          I’ve been out of workforce since 1986 due to poor health.
          I was fortunate to have some assets when I stopped working.
          I have never received DSP.

          Prior to 2007 I saved well over 50% of each year’s income (from ASX investments) every year, and voluntarily contributed some earnings to super. Since 2007 much of the capital is in super.

          I last went on a holiday in 1986 (there isn’t much point travelling when you’re too unwell to avail yourself of the delights of your destination).
          I live in 60’s home with 60’s bathroom, 60’s kitchen, 60’s carpets, 60’s concrete in the driveway, 60’s curtains, no air conditioning (I guess that makes it ’60’s air conditioning’ – I open the windows!) . . .
          I’ve been here since 1989.
          In the time I’ve been here most of my neighbours, at the very least, have had two kitchen makeovers, one bathroom makeover, new pavers, new floor coverings, new curtains, new ducted air conditioning, new garden (come to think of it most of them have had two new homes, i.e. they’re mostly new neighbours living in serially ‘made-over’ houses – you know – – – renovate on top of renovation, and sell to the next renovator).
          I’ve borne significant medical expenses outside of Medicare rebates (i.e. I pay full fee at doctors, for tests etc.). I haven’t needed many prescription items but currently I would pay up to $36.10 per script, not $5.90 (paid by concession card holders).
          I don’t get assistance to pay electricity, water, phone, council rates (concession card holders do).

          Chronic ill health is isolating too. I don’t have strong network of friends, relies, family who rally to assist me. It’s been a solitary journey and I expect it will stay that way into my dotage. So while the green-eyed monsters look at my super balance with envy and accuse me of elitism, I look at my balance and hope I have saved enough. Currently I do as much as I can myself – clean gutters on the roof, change tap washers . . . I replaced the float in the hot water heater in the roof a few years ago – took me all day but probably saved ~$200 by avoiding calling a plumber. There’ll come a time when I’ll have to pay for all of this. I won’t have kids to call on to assist. And I won’t have multiple govt concessions to assist me with accounts/fees.

          I have always had full health insurance, home & contents insurance, comprehensive car insurance. I intend to continue paying those premiums. Another cost that I choose to bear so that I minimise my need for govt or charitable assistance.

          I’m not convinced that those who desire to be self sufficient, and save prodigiously in super to achieve their desire, would be less of a burden on taxpayers by not saving and just settling for govt pension.

    • and do nothing for those for whom the problem is that they cannot save, because they have no discretionary income after mortgage repayments or rent payments are deducted.

      As you kno i am against high housing prices, but this element happens prior.

      The bogan got a lot more discretionary income, particularly the bogan boomers, whose turn it was to do the heavy lifting. They got it via Howard’s tax cuts.

      What did the bogan do with these tax cuts? Buy more product to demonstrate a higher standard of living?

      Invest in productive capital, to ensure an enduring higher standard of living for ther descendants?

      No, they paid more for the same house.

      There’s not always a point to giving people more discretionary income when they may not be smart enough to do better things with it, and very few nations are as financially stupid as Australians.

      • The “affordable housing, high discretionary spending economic model” is the one with housing supply as elastic as the supply of cars and TV’s; hence no-one “pays more for the same thing”.

        This model is going to “pwn” the future of western civilisation over the next decade or two. You know where it exists.

      • “very few nations are as financially stupid as Australians.”

        Have a look at the post on the latest situation in the Netherlands.

    • My understanding of super is that with ageing population and baby boomer demographic less state resources or funds would be available in future, or more competition, for pensions and healthcare.

      Further, rather than pay rises going into pay packet that are spent i.e. go straight back into the economy and lead to inflation, it enforces saving for the future.

      First generation of retirees who were full contributors and/or recipients will not be till 2040?

      In meantime CentreLink acts as a (temp) safety net to make up super shortfalls, while retirees receive many other benefits through tax system (and pensioners paid much more than dole).

      Some spruiking went on in media during past year suggesting that anyone should be able to access their super account anytime…. suggesting they could invest where they see fit, e.g. property?

    • not surprised at all dam.

      Be careful equating super with a cash cow – its not as broad or deep as most people think. Most of the wealth is tied up in a few individuals/families.

      This is the same cognitive dissonance with family incomes – most think $100-150K is the norm – including the RBA.

      It aint.

      And that nominal income is more likely to fall in the coming years then rise for the median household. The upper end will likely be fine, as always. Just facts – not ideological, just describing how it is…

      • This is so true. My work involves working with a lot of data around household incomes. Whenever I talk about median income levels, most people are surprised at just how low they really are.

        • Why would that surpirse you?

          The fact that 51% earn a piddly amount should be a wake up call.

          Mod: RP – come on, no need to belittle people.

          • Then how can most of the people pay mortgage and buy 2-3 cars per a family? I have never been able to understand that. Or maybe they have some hidden income?

          • Most people who own a house are getting older, and bought at cheaper prices. We do see the average age of ownership rising, we do see FHB shrinking.

            Also fathom that the introduced fact here on MB was something like 41% of renteres receive government assistance.

            If not, considere we are at record private debt levels, rising from 25% of GDP to 160% in the last two decades.

        • When I see the amount of people part taking in the Black Economy and doing cash jobs, it does not surprise me at all that 51% report earnings of less than 50k. In one weekend at a holiday destination I found :

          The petrol station paid half its staff cash at 75% of the minimum wage
          The local post office paid staff cash in hand
          The place we were staying offered 10% discount for cash and no invoice (we declined)

    • hzubrica73MEMBER

      Regarding the 2% over 250K, may also be rounding but there were only the top 1% or 92000 people with a taxable income of 250K in the 2008/2009 FY.

      • strange that, I thought the 1% was earning over 800k (personal target 🙂 ), perhaps it was as household, before deductions.

        • Tassie TomMEMBER

          Most recent data I could find, which was around GFC time and I can’t remember where I found it, the top 0.1% was earning around $750K, and the top 1% earned about 260K (I think that one was ABS income report).

  3. thomickersMEMBER

    Its possible to get to the $500,000 mark with almost any occupation.

    At my workplace one of our clients, full-time bus-driver, finished work at age 65 with $800,000 in super. no inheritance, raised 3 kids.

    • Good point. Wealth comes from prudence and willingness to sacrifice, not from a high salary.

      Spend all your income as you get it and it doesn’t matter how high your income is, you will always be broke.

        • It always depends on what you think is necessity. Today almost everything is “necessity”, because everyone wants what others have. This is called consumerism.

          People have to live below their means, because the lost of utility is always greater and more painful on the downside than the gain when consuming more on the upper side. Everyone of you knows that, don’t you?

    • it’s a lot more comlpex than that.

      Even if at age 45, you make $25k concessional contributions every year, that’s $500k nominal at 65.

      Past financial compound rates may not occur again in our lifetimes. The expectation that we give to capital to grow as such certainly contributed to the GFC, in regards to the pricing of debt and the performance of management.

      • thomickersMEMBER

        nope.

        The reasons:

        1) Started a managed share plan in 1975.
        2) Rode all the crashes (100% australian shares allocation throughout the last 35 years including 2008)
        3) his family home was cheap (before this negative gearing crap)
        4) 2nd hand item shopper(ie car, school books).

      • No, he (like Einstein) understood the value of compound interest.

        PS Snopes sniffs at the Einstein reference, but what the heck.

  4. A couple of thoughts-
    Compulsory super started in 92, but it was only 3%. Big balances will really start to be common as those who started work after 2001 (when 9% became mandatory) have been in work for a couple of decades.
    Super is your money, but it is the employer who pays it- so if it is advertised as a $50k job + super, that would be 50k plus about $4.5k. People think it gets deducted from their take home, but it doesn’t really, unless is is advertised as a $55k package including super.
    Employers only have to pay quarterly, small (and large ) businesses seem to have real issues managing cash flow to enable this. This has a knock on effect as people don’t receive their full amount of super an awful lot of the time. Imagine if your employer “forgot” to pay wages for a month or two.
    The real multiplier of balances is where employers kick in extra if the individual contributes- my husband effectivel has a 17% rate- he puts in 5% and his employer ups the contribution to the equivalent of 12.5%

    • It is deducted from your take home pay, because the levy is calculated on salary and wages costs.

      It’s really just forced saving in lieu of pay increases. Except it’s expensive for employers to administer and bad news for today’s budget. Since wages and salary’s would be taxed at marginal rates, whereas super is taxed at a fixed 0%, 15% & 30%.

    • Super is your money, but it is the employer who pays it

      Your wage is also your money, and the employer pays it.

      Super is remuneration for labour. However it is a segment that is quarantined to a trust that can not be accessed until certain conditions for access are met.

      I know the ruling is that super is a tax on employers, but that’s a really poor interpretation, considering the ATO views contributions as income from the receiving funds perspective.

      The ‘tax’ ruling allows business to squeal like a petulant baby too.

  5. The other aspect is for self employed with debts, they hope that there business will have buyers and in the meantime they are not contributing to super , also the increasing casualisation of the workforce means that workers earning less than $450 per month will not have super contributions made.

  6. The cold hard fact is that SMSF are using gearing on property inside the fund to make a loss/NG so that this loss can increase the capital contributions and save tax on the way in. That is why property is being bought by funds.

    Ask any accountant who managers SMSF’s!

  7. ceteris paribus

    UE,

    I don’t want to get into the issue of what people earn or how much they save or “blow” day to day.

    Let us just leave aside people’s “own” money and let’s just focus on the welfare “top up” from government in tax concessions with regard to super.

    Next year when the libs are in, the low-income worker will be paying a 15% tax penalty on his super contributions while many higher income earners will be receiving a 30% tax discount on their contributions- a 45% difference in tax concessions.

    This discrimination is OUTRAGEOUS. I have never been a pinko- but for goodness sake, this is like putting the average Joe in the stocks.

    Not to mention those who put millions in super during Costello’ years and have a nice little onshore tax haven on earnings tax.

    UE, you have developed a minor legend status on your advocacy for younger people on affordable housing. I would love to see you get your capable research and writing brain into the superannuation disgrace and injustice we have in Australia. You are just the sort of guy that many Australians need.

    And don’t expect much help from Labor. They know the
    Keating creation is now a shambles but they are totally afraid of the moneyed-classes and their hirelings in the financial press.

      • And please inc NG/losses inside the funds on property to increase the cap contributions and save tax on the way in…a double whammy of tax evasion and making house price inflation….

      • Australia’s Super system has been given top marks by many international bodies. Obviously as pollies add, subtract and generally fiddle around with rules things become disjointed. But its still rated internationally a good system for retirement savings seeing no future government will have the money to pay for the retirement of all its citizens.( I belive the federal government liabilities currently just to cover federal public servants/judges and pollies is in excess of $200 billion).

        While obviously if you are younger it will take time to build up a balance and then access this money but I don’t see the rip off aspect- other than sovereign risk(ie changing the rules) which all super savers face be they aged 20, 30,55 or 65 ? If you are aged 20 you are facing many years of rule changes compared to being 65.

    • This would all have been so much simpler if the politicians hadn’t been determined to get their hands on some of the money as soon as possible. The obvious way to deal with taxing super is no tax on the way in, no tax on earnings, tax at marginal rates on the way out (with an estate tax or equivalent for those who don’t withdraw their super before they die, for whatever reason).

      • Why are the tax concessions in required?

        The main purpose of super is to hold funds in trust so it can’t be accessed for a period of time.

        Now I’m not advocating tax in at marginal tax rates, but the zero tax stats isn’t the most pressing feature.

        However no tax on earnings is a no-go, otherwise you’re creating two widely different classes of investors.

        It’s a common scheme around ex-div dates for 0% entities to arbitrage to get franking credits, as two competing investor classes price them differentl.

        • OK, that could be arguable. But if you then tax withdrawals at full marginal rates, that could be seen as double taxation. I know we had that before dividend imputation was introduced, but I think it is hard to defend.

          Any better ideas? I agree with your point about the franking credits arbitrage, BTW. A well-known ploy already.

  8. Beware of the professionals that have inveigled their retainer percentile upon your super that they do so little to justify yet snaffle their portion from whatever becomes the fund investment returns.
    Before any super investment returns are calculated the nicely dressed men who meddle about with your super, along with the fund administration group charges are paid first, then for those poor clowns who have paid for or are still paying a percentile to their gold-toothed financial advisers, the little that remains of these earnings is then classed as the fund investment returns.
    Can somebody prove me wrong in this matter?

  9. Byron worked out the truth right at the start and many bloggers have missed it but this article offers little evidence for discrimination against the poor. Pernickety is on the right track with possibly the bit about the employer paying for the employees’ super being incorrect(what is really happening is the Employer is deducting super along with tax and making payments on behalf of the employee).

    How is this for a very rough and basic calculation;
    Start of work life at 20 and retire at 65. Starting salary before tax and including super $22,200pa (or about 12.25/hour) estimated increase in wages per annum 2.5% Estimated increase in deposited funds at 5%pa (only calculated as compounding at the end of each year to make it quick for me)which would leave the Super balance at age 65 as $499,484.65

    The above taken percentages shown at the end of the article would be expected and not a surprise

    People who could afford to (those at the top of the range) were permitted to deposit funds into Super as a once off allowance to increase the superbucket and add to the country’s savings and provide a source of investment for the country and at the same time reduce the drain on public funds when people reach the retirement age as they will have income to draw on.

    It seems to be largely working and an incentive given for people to add more to savings and therefore the country’s source of investment funds. If government wanted to intervene it could stipulate the kinds of investments super funds can make and I am sure many people here have good ideas for that.

    Also to consider that if as a result of the super incentives taken up social security pays less in pensions and if the GDP rises due to more onshore investment funding rather than foreign investment it must be worth it.

    What is the ATO’s agenda, sensationalism is not helpful and I would expect an economist to prepare a proper evaluation.