There haven't been any rumours regarding the reintroduction of tax of superannuation pension payments, but I wouldn't be surprised if a Labor government introduces a progressive tax scale to superannuation pension payments in the future.
Anyhow, with the drop in value of my superannuation account since 2007, a lower expectation for investment returns in future (I'm now using 8% ROI for "high growth" investment option over the long-term, rather than 11%), and the rumoured changes to contribution limits, I decided to do some new projections of my likely superannuation accumulation until retirement age (65) and possible self-funded pension income to age 90.
According to my current projections, provided I work until 65 and make the maximum allowed salary sacrifice contributions, I should be able to self-fund a pension equivalent to my current gross salary ($85K) until age 90. IF my SMSF investments achieve an average 8% total ROI and inflation averages 3%.
I haven't bothered doing a Monte Carlo simulation of possible outcomes as I already know that a few years of below-average returns, or a lower average ROI, would slash the pension rate I could sustain until 90. Perhaps I'll get lucky and not live as long as my Paternal Grandparents (94). In reality I will attempt to compensate for periods of poor returns by "topping up" my SMSF account balance by making additional "after-tax" contributions.
I should still be able to achieve a comfortable retirement by making the maximum pre-tax contributions allowed under the proposed changes, but it will increase the risk of us suffering a drop in living standard during retirement if I have any unexpected set-backs (such as a lengthy period of unemployment). It's also unfortunate timing for us in that the $25K cap will only apply to me over the next three years (until I reach 50), which corresponds with the period before DS2 starts school. Aside from paying 15% more tax (30% marginal tax rate, rather than 15% superannuation contribution tax) on the extra $25K of taxable income (about $3,750), this change will probably also mean that we are no longer eligible for child care benefit payments or child care tax rebate (we currently get back about half of the $80 a day we pay for DS2's long day care), and that DW will no longer get any Family Tax Benefit payments (despite getting very little net income from working two days a week after taking into account the cost of day care). Total cost of this change to us will probably be around $8K pa - which seems rather harsh for a 'working family' with close to average household income.
It is also rumoured that the budget will disallow tax deductions for "hobby farm" losses against other income sources. As a partner in my parent's alpaca stud, this change would increase my annual tax bill by an extra $1K or so...
Despite a likely "horror budget" (from my point of view), it appears that the government is planning to run "temporary" budget deficits for the next 5 or 6 years. Unfortunately no one seems to have told the treasurer that the economic cycle is typically that long - so the NEXT recession is likely to put Australia into a permanent budget deficit. Since Australia is likely to change government after 2-3 terms anyhow, this probably doesn't worry the Prime Minister and Treasurer too much.
It will be interesting to see what impact an increase in the aged pension has on the projected long-term budget balance and required tax rate (as % of GDP), given the aging population and higher average unemployment rate likely for the decade or two. Perhaps We won't get an updated intergenerational report in this year's budget papers.
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