Opinion
How wealthy retirees cost taxpayers more than pensioners
By Julia Hartman
To all the self-supporting retirees claiming they should not be penalised for providing for their own retirement, let me assure you, you are not.
Once the amount held in superannuation reaches $1.7 million, assuming a 7 per cent return, the cost to the public purse of the earnings being tax-free exceeds the cost of the full single age pension.
In many cases, taxpayers are contributing more to support the self-supporting retiree’s lifestyle than the pensioner’s.Credit: Dominic Lorrimer
There are also tax benefits to putting money into superannuation over the years. The self-supporting retiree probably got a tax deduction for the income they put into superannuation, and the earnings on their investments up to retirement were only taxed at 15 per cent.
This is unlike those who were not in a position to take full advantage of the superannuation concessions during their working lives. This may have been because of health issues or because their work was low-paid or unpaid. It may have been that employers back then did not make superannuation contributions.
They may even be from the era when it was considered for society as a whole that women’s wages should be low enough to ensure they remained dependent on their husbands or fathers. If they were a public servant, marriage meant instant dismissal.
What is most unlikely is that pensioners have deliberately put themselves into poverty because they wasted their money, a common catchcry of wealthy retirees.
There is no room for this sort of inequity in an economy where the fastest growing homeless demographic is female age pensioners.
A single self-supporting retiree can have $1.9 million in superannuation and not pay a cent in tax on the income earned. If the income is from franked dividends, they also receive franking credits. With the franking credits, it would be reasonable to expect a return of 7 per cent or better, at least $133,000.
Tax and Medicare on $133,000 are $33,348. The single age pension is $29,028. Since Australia’s tax revenue is reduced by $33,348 every year, it would be cheaper to pay them the full age pension than provide the superannuation tax concessions.
On the lower end of the scale, a self-supporting retiree with superannuation earnings of $47,170 ($673,850 x 7 per cent) will just miss out on the pension. Tax on $47,170 is $4886, so they are helping the public purse, but probably not as much as the tax they saved on their superannuation contributions.
The inequity begins when $1.7 million is held in tax-free superannuation. Yet, some of these wealthy retirees are complaining about the extra tax when their balances exceed $3 million.
If the self-supporting retiree has more than $1.9 million in superannuation, the earnings on the excess will only be taxed at 15 per cent. If they don’t like this, once they are over 60, they can remove any amount from the superannuation environment tax-free.
As all the income received from a superannuation fund by a retiree is tax-free and not even included in the self-supporting retiree’s tax return, they qualify for the first $18,200 of income outside of superannuation to be tax-free, too.
Once they reach pension age, thanks to the Senior Australian Tax Offset (SATO), they can actually have income outside of superannuation of $36,500 and still pay no tax. With the right strategy, the earnings on more than $2.4 million can be free of tax.
What picture comes to mind when you think of a self-supporting retiree? Cruises, golf clubs, motor homes, restaurants? What sort of lifestyle do you think a pensioner has?
In many cases, taxpayers are contributing more to support the self-supporting retiree’s lifestyle than the pensioner’s. There is no room for this sort of inequity in an economy where the fastest-growing homeless demographic is female age pensioners.
Julia Hartman founded BAN TACS Accountants more than 30 years ago and is still passionate about all things tax.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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