Millionaires on pension row
Australia's wealthiest citizens are claiming the same
government pension benefits as its poorest while harboring millions of
dollars in assets for their estates - by using a loophole in the
superannuation rules that financial services experts claim is a rort.
Millionaires can use the do-it-yourself pension funds
to create structures that enable them to easily pass the means and assets
tests and claim the full age pension.
the same time, multimillionaires are using the self-managed pension to legally shelter large parts of their fortune in a pension reserve that can
be used to provide for the next generation.
size of the self-managed sector of Australia's $508 billion superannuation
industry has more than quadrupled in recent years as dissatisfied
investors have shifted their assets from the super funds to the
DIY funds that have been strongly pushed by advisers and
accountants for their tax breaks
in a sign of the growing concern about the sector, the Government this week moved to tighten a main tax break by proposing
to claw back superannuation contributions made before a member
became bankrupt, amid growing concerns that the generous breaks are being
used to hide assets from creditors.
Gilbert, chief executive of the Investment and Financial Services
Association, whose members manage about $600 billion, said: "There needs to be some finetuning to the system. There needs to be a level
playing field. Clearly some have advantages over others."
This is how it works. As trustees of their own $1.2
million self-managed pension fund, John and Jenny have their actuary
confirm that their assets are sufficient to pay an annual income of
The money in the fund, their house and $200,000 in
other assets do not reach the assets test threshold, and the pensionable
income, after deductions, entitles them to a full state pension of around
The accumulating assets in the fund become part of
their estate for the next generation.
couple, Jack and Joyce, with assets of $2.4 million in their fund, have
their actuary confirm their assets are sufficient to pay an income of
$96,000, subject to a 15 per cent rebate, as a result of which they pay
their income is flowing from their assets, but the earnings on their
underlying assets will be free from tax.
existing, legal tax rules, they have also turned a $2.4 million lump sum
into $1.05 million. Once again, fund assets become part of their estate.
The federal Assistant Treasurer, Senator Helen Coonan,
said retirees would be better advised to focus on getting the best overall
return for their investments, rather than simply structuring their affairs
to maximise their entitlement to the age pension.
doing so, retirees "would be forgoing access to the bulk of their
capital in return for a non-commutable income stream and access to the age
pension", she said.
practice, wealthy retirees would be reluctant to surrender control over
the bulk of their liquid assets in return for this advantage."
Connolly, a director of the Financial Services Consumer Policy Centre at
the University of NSW, said the Government had been very generous in its
assets and income tests.
"The Government is well aware that its policy is
not well targeted at poorer people," he said. "It is seen as a
Opposition spokesman Senator Nick Sherry said the Tax Office should be providing publicly available data on what was going on to allay fears of rorting.