Strewth! Wealthy Aussies to Be Taxed On Superannuation Earnings

(April 5, 2013) Wealthy Australians are in for a shock today after treasurer Wayne Swan announced plans to curb tax relief for those saving for retirement, as the government continues to battle to make the A$1.5 trillion ($1.6 trillion) pension system more sustainable.

Retirees who receive earnings of more than A$100,000 ($104,180) a year from superannuation assets will now be taxed at 15%. Savings up to A$100,000 are tax free of charge.

The changes will affect 20,000 people and save about A$900 million ($937.6m) over four years, Swan said.

The move has been attacked by the Australian opposition party, with leader Tony Abbott pledging to overturn the changes if his coalition takes over from the current government at elections on September 14, according to Bloomberg.

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“We don’t support this new tax on superannuation,” he said. “This is a A$1 billion ($1.04bn) hit on people’s retirement savings.”

But the measure has been supported by former Prime Minister Paul Keating who helped design the system.

Speaking to the Australian Associated Press, Keating said hitting the wealthy with superannuation changes will help pay for Australia’s retirement savings system over the long term.

“The changes seemed designed to return to the notion of reasonable benefits for superannuation without altering the tax treatment of lump sums themselves,” he said.

The ageing population is a key concern for the fourth biggest pool of funds under management globally, and the costs are starting to hurt the Treasury.

The treasurer was forced to abandon a pledge to return the national budget to surplus late last year, and several changes to “the Super” were threatened as part of a plan to get the funds back on track.

Swan also announced that from July 1, the government will allow Australians aged over 60 to contribute as much as A$35,000 ($36,500) to their pension fund each year at a reduced tax rate. This concession will extend to people aged 50 and over from July 2014.

And employers, which currently contribute 9% of workers’ salaries to superannuation funds, have been told their levy will rise gradually to 12% by 2019, beginning with an increase to 9.25% on July 1.

(April 4, 2013) – For most of America's largest funds—anointed the $20 billion club by Russell for those surpassing the $20 billion liabilities threshold—the 2012 highway bill MAP-21 also granted them holidays from funding their pensions.

But last year the majority of club members proved they are not just leaders in size, but also ambition. According to research from Russell, which followed up on its report from last month, most of the 19 either made voluntary contributions or left the door open to that possibility. Judging by the contribution plans laid out in each company's annual report, aggregate funding inflows for 2013 should in fact surpass the blockbusting $28 billion contributed in 2012.

"Over the last few years, several members of the $20 billion club have challenged the status quo and taken aggressive steps toward managing their pension risk," wrote Justin Owens, an investment strategy analyst and author of the research paper. "While their approaches have varied in creativity and magnitude, most have taken some action to proactively address their defined benefit funding challenges."

Perhaps the most unusual strategy utilized by club members to bankroll pension liabilities was the issuance of long-term bonds. Ford and UPS took the lead with this approach, which takes advantage of low corporate discount rates to borrow cheaply for the duration of the debt. The proceeds on these bonds flowed directly into corporate defined benefit (DB) pension offers.

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"For the first time, benefit payments, which reduce liabilities, are expected to exceed service and interest cost, which increase liabilities," Owens wrote. "You couple this with ongoing risk transfers and possibly higher interest rates, the peak of DB plan liabilities may very well be behind us."

As total pension liabilities for the group reached new heights last year, their collective funding shortfall climbed to a record high along with it. When those shortfall figures were released, however, Russell's Chief Research Strategist Bob Collie told aiCIO they ought to be taken with a grain of salt.

"The surprising part of it is that we track funded status throughout the year and didn't expect a major change," Collie said. "Yet when the number came in, we saw this fairly significant drop." He cautioned against taking the rise in unfunded obligations too seriously, however: "It's just sort of this technical thing. It washes out over the long term."

It may not take a very long time. Owens' follow-up study indicates that 2013 could finally be the year liabilities—funded and otherwise—quit climbing.