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Julie Bishop proved lots of Aussies don't understand super!

Peter Switzer
1 June 2016

By Peter Switzer

You’ve gotta feel sorry for Julie Bishop, who’s a very competent Foreign Minister because a lot of Australians doesn’t really understand superannuation. She was shown up by 3AW’s gun radio host, Neil Mitchell, when asked to explain the transition to retirement pension (TTRP).

When I heard him get onto super in his interview with her yesterday, I knew he’d try to trip her up on TTRP. Mitchell understands it — he probably has a TTRP — and so does 2GB’s Steve Price, who admits that Paul Rickard and myself taught him when we created and ran the Super Show for five years on 2GB.

By the way, two weeks ago, Josh Friedenberg was in the same Mitchell trap and came away looking like a goose. I bet most politicians would be goosed by TTRP and a whole lot of super questions, if they were forced to sit a super test.

The simple reality is that the most (or second-most) important wealth-builder in our lives is super. It competes with property as our key nest-egg provider but is largely not understood.

I bet most of us don’t understand concessional contributions, non-concessional contributions, their caps, salary sacrifice and how super is taxed now and will be taxed after the election. It’s so important but we don’t understand it, which says a lot about us, doesn’t it?

Let me give you a quick explanation of each term and then help Julie and Josh out by explaining TTRP.

  • A concessional contribution comes from your boss' compulsory super payment of 9.5% plus any salary sacrifice amounts. It’s called concessional because it’s taxed at the concessional rate of 15% when it goes into your super fund. This is less than your usual tax rate, so it’s a concessional rate of tax.
  • Salary sacrifice happens when you sacrifice some of your income and don’t take it home but put more into super. Imagine if you were in the 45% tax rate and you put $15,000 extra into super. This money is taxed at 15% instead of 45%, which is a really concessional rate and helps you build up your super. It’s great for those older Aussies trying to improve a low super balance before retirement.
  • Non-concessional contributions are ones you put into super ‘tax-free’ but it’s your money and it could already have been taxed. Imagine you sell a business or investment property and capital gains tax has been paid but the leftover bit you want to roll into super. Well, that’s a non-concessional contribution. The current caps were $180,000 a year or $540,000 in one go to cover three years but you couldn’t put more in until the three years were over. 
  • Transition to Retirement Pension or TTRP allows someone 56 years old (or until they retire) to work a few days less and draw down between 4-10% as a pension out of their super to make up. Others actually don’t retire, it’s not compulsory, and they take some super but then contribute the maximum amount to super via salary sacrifice. This means they get more into super and they reduce their tax bill at the same time. They pay a concessional or lesser tax rate on the super money they draw out. They can do this until age 65 but after age 60 their pension income they draw out of their super is tax-free anyway.

The best bit is that the earnings in their super fund are taxed at only 0%! Yes, that’s the best rate of all, apart from a minus tax rate, which would be a rebate, I guess.

This is why Mitchell is cranky about it, apart from the fact that he might be on one of these pensions. The Government including Julie Bishop keeps saying that 4% of wealthy Australians are affected by their super changes. That’s not really correct.

Mitchell says 80,000 to 500,000 Australians are on a TTRP and their tax rate goes from 0% to 15% if the Coalition wins the election. My office rang the ATO for the actual number but the contact we talked to couldn’t give us a number!

By the way, the current concessional caps are $35,000 a year for 50 year olds and over and $30,000 for those under 50. These will go down to $25,000 for everyone on 1 July 2017, so all of us working will be affected. That’s more than 4%.

I’ve left out finer points about super and limits and things like that so I wouldn’t fill your head with confusing extra info but this is the core of what you have to understand about super to build it up.

Tomorrow I’ll look at what Malcolm and Bill will do to super, so you can be a ‘super expert’ by the second of July on election day.

Super! Hope that helps Julie. Whoever briefed her for that Mitchell interview really deserves that famous Bishop death stare and a hell of a lot more.

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