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Letter to Bill Shorten

Senator the Hon
Bill Shorten
PO Box 6022
Parliament House
Canberra ACT 2600


Dear Sir.
In the article “Keep focus on rise to 12pc” AFR 20.12.2010 by Barrie Dunstan, it is reported that the Shadow Minister for Superannuation opposes the governments push for a rise in compulsory super contribution from 9-12%.
Coming from a the liberal side, this is rather surprising, but very sensible.

The Australian compulsory super is the biggest fraud imposed upon the average Australian citizen and should be abolished completely, but as the super is now so big, it will be difficult for any government to do so.

Why do I think that that the compulsory super should be abolished, when everybody seems to crow about it?

The Hawke/Keating government which introduced the compulsory super really hoodwinked the Australian public. It was badly designed, with the means test of the basic pension not being considered at all. Australia is the only OECD country which means tests the basic pension, yet every worker pays tax from which the age pension is paid.

The means test punishes every single retiree with a 50% loss of the age pension for every dollar income above $3796 and a couple above $6656 or assets above $98,755 for single and $171,911 for a couple. This robs people like myself of a decent standard of living in retirement, after working and paying into first compulsory super in my country of origin and then voluntary government super in Australia.
I definitely regret to come to Australia some 55 years ago and not returning after two years when my contract expired back to my country of origin.

The means test of the basic pension, for which the Australian people in the workforce are now paying will affect at least 75% of them in the future, because they will be depending on a part pension, the same way as the current retirees are now.

Who are the biggest beneficiaries of the compulsory super?
The super industry as can be deducted from this statements:

the real beneficiaries of the compulsory super will be the super industry.
Here is what you told a delegation of Superannuation funds of Australia as reported in the Australian Financial Review 11 Nov 2010:

[b]”The simple reality is that upping the super guarantee to 12 per cent is a huge boon for the industry”
It’s one absolutely founded in good public policy, but there is no denying it will benefit your business enormously.[/b]

Louise Dodson writes in the AFR 16.Dec 2010 in her article “Overhaul offers Gillard a chance to deliver”;

Australia’s unique national superannuation scheme provided a hybrid retirement income system and spawned an enormous new industry.

Now Roy Morgan is challenging the government that the compulsory super may be unconstitutional.
If the High Court were to declare the Act unconstitutional, employers would presumably no longer be required to deduct income from employees and to pay the money into superannuation funds. The potential implications are startling for the finance sector and Australia’s key retirement savings system.
You can draw your own conclusion who will benefit most from the compulsory super.

Data on super assets as reported in Financial Review on page 17 on 9’th May 2006 as applicable to 2002.

Mean value of superannuation

Poorest 10% own 0.4 =289 million proportion of total value % =0.000001

2nd 10% 2= 2181 million % =0.4

Richest 10% 358.7=343,990million %=57.8

Here are my calculations how the current retirees are treated and this will not change in the future as long as the means test for the basic pension stays in force.

Take retiree: 1)
Worked for 45 years and paid taxes, but did not accumulate enough assets to be completely independent of the age-pension. For every dollar of extra income for him and his wife above $6,500, the couple loses $0.50 of age pension, and if their income exceeds $45,000 per annum, the couple will pay tax of $0.315 in the dollar including medicare levy, leaving them with an income of $0.185 from every dollar extra income. For the defined benefit income a 10% tax-offset applies if paid from an Australian super fund, but not if the income comes from an overseas fund.

Retiree 2)
Has accumulated assets of $1.5million and the assets are in a so-called taxed Self Managed Super Fund. To be very conservative, the assets are in a term deposit earning 7.0% income of $122,500 per annum and even if the retiree is single, he/she will not pay a cent of tax.
Now if the assets are in fully franked shares, like banks and return $100,000 worth of franked dividends, he/she will again pay no tax on the dividend, and the government will send him/her a cheque of $30,000 for the franking credits.

Retiree 3)
Is an ex-politician or highly paid public servant, in receipt of a defined benefit pension of $100,000, on which he/she will have to pay tax, but he/she gets a 10% tax offset, which equals $10,000 after reaching retirement age, but before retiring, the public servant can establish a SMSF and contribute into it extra with tax concessions if the $25,000 total for under fifty and $50,000, if over fifty is not exceeded and in addition he/she can contribute $150,000 from after tax income, and the earnings from the SMSF will only attract 15% tax, and when the person reaches the age of 60 even the income will be completely tax-free for the SMSF.

Considering the three different categories of retirees, how can any government justify this sort of inequity?
This can hardly be called “Democracy”.
What Ken Henry should have recommended is, abolish all tax concessions for super,abolish the means test for the age pension so that even millionaires get the full pension, but then the retirees should pay the same tax as do the workers.
The tax concessions would definitely have to be abolished, because they now equal the cost of the age-pension, and will not be sustainable in the future.

I would also like to refer you to my website Hawilspoint “The Great Australian Super Fraud”

Yours truly

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