Superannuation case study: The self-employed

Article in The Australian, May 21 2016 by Michael Roddan

simon-makehamSimon Makeham, 50, is a self-employed resident of Young, NSW, and head of the Self Managed Super Fund Members Association, who uses the maximum caps for concessional and non-concessional contributions. He regards the new super limits as a “vote changer”.

Both my wife and I contribute the maximum each in concessional contributions. We also make non-concessional contributions when the finances are available to do it. If you’re over 50 years old it used to be $35,000, but for someone under 50 it was a maximum of $30,000. That’s now lowered to $25,000 across the board. Obviously that’s a real issue as to my own ability to accumulate money to a reasonable retirement balance. Not only have I lost some ability to contribute concessionally, I’ve also lost the ability to contribute non-concessionally over and above $500,000.

So, over my lifetime, if I maximise just on contributions alone, I put in $500,000 of non-concessional contributions and I was contributing my $25,000 a year, and I’m 50 years old now. So if I’ve got 15 years to go and I put in another $25,000 each year that will take me to $375,000. Taking off contributions tax of 15 per cent, that leaves me with about $280,000. Taking that with my $500,000 of non-concessional contributions, that means that the maximum superannuation balance that I can accumulate is going to be around $800,000. There is no way that the $800,000, invested conservatively on today’s cash rates of around 2.9 per cent if I’m lucky in a term deposit, is going to be enough for my retirement. Unless I have another way of funding something, I could end up on the age pension. Or I’ll have to live off other assets that I have.

The changes that have been made are not in line with what the purpose of superannuation has been for. There is no way that I can live in my retirement, taking in longevity, there’s no way that I would be able to live solely and wholly on my own superannuation. I cannot be a self-funded retiree just off my own superannuation savings because there won’t be enough in there because the contribution limits being imposed on me are too low.

It certainly will influence my vote. Super will no longer accommodate the middle class. They are punished by these decisions. In the self-managed super fund arena they are more traditionally Liberal and National voters. Some of those people are making the decision to change their vote for the first time in their lifetimes. It doesn’t matter what side of the fence you sit on, the retrospective nature of the changes we would argue is constitutionally wrong. It’s goes against the principle of what Australia is about.

If the Liberals don’t change their position on this and at least draw a line in the sand and say these changes do not apply retrospectively, they are going to lose a massive amount of trust and a massive amount of votes.