Robert Gottliebsen (“Gotti”) has added a new string to his superannuation rent-seeking bow, this time bemoaning that older Australians are being required to actually run-down their tax-free superannuation savings rather than passing them on to their heirs. From The Australian:
Younger readers may not realise that once a superannuation fund goes into pension mode and the beneficiary is aged less than 65, it must distribute 4 per cent of the asset value of the fund until the beneficiary turns 65, after which the minimum distribution becomes 5 per cent of the assets.
Once the beneficiary reaches 75 minimum distributions rise to 6 per cent of assets. On reaching 80 it escalates up to 7 per cent and keeps rising.
Once you reach 95 minimum distributions becomes 14 per cent.
…the over-65 and certainly the over-75 distribution rates are so high that a beneficiary is unlikely to have much to distribute once the person reaches 95…
Because I am 75, I have been very aware of the unfairness of the distribution requirements…
In simple terms, this elderly subscriber is forced to run down her asset base which generates her income because she can’t earn returns at the five or six per cent rate.
Earth to Gotti. The superannuation rules governing compulsory distributions are designed to replicate an annuity. Just like a mortgage, the payment amount attributed to principal rises as the mortgage principal is amortised. This is precisely what should happen with a superannuation pension. A retiree is required to draw down the pension balance rather than leaving it in their estate, with the trade-off that the tax treatment of superannuation/pension income gets preferential treatment.
Superannuation savings are just that, Gotti: savings. They should be used to fund one’s own retirement and run-down as one approaches their death.
Superannuation was never meant to be a wealth management tool for passing along to the kids.
