Nostalgic references to "the good old days" have long been a bit of a joke (eg. see "The Good Old Days Skit" from the 'At Last the 1948 Show', 1967*.) But just how good we have it these days compared to our grandparents time (and before) was again brought home to me when I was browsing through the latest annual HILDA** report and came across this data on how much time off work Australian full-time workers typically had in 2006.
Looking at those workers who had been in their current job for more than 1 year (and were thus entitled to the usual 20 days paid annual leave), the typical full-time worker took 16-days of paid leave, plus another 3 days of paid sick leave and a couple of additional days of "other" paid leave (eg. workers compensation). This means that, combined with the 10 days paid public holidays we have, the average Australian full-time worker worked around 229 days in 2006.
(And they also accumulated 8.3 weeks of "long service" leave if they stayed in the same job for ten years.)
With the average working week being around 37 hours in Australia, this means full-time workers clocked up a total of 1,695 hours in paid work during 2006.
This translates to spending 29% of their waking hours in paid work during their working years. With the average retirement age being around 58, this means a "typical" worker might work a total of just over 15% of their total "waking hours" during their entire lifetime, assuming they started full-time work at 20 and lived until 72. Of course, some people work at lot more than 37 hours a week, and don't take time off work for holidays - but the HILDA figures show that as many people took more than 20 days leave in 2006, as took less than 10 days leave.
Some people may still think that this is a large chuck out of their valuable time, but most people get some enjoyment from their work, even if it is just from the social contact with co-workers. In comparison, my grandfather started working "down the pit" in South Wales when he was 15. In those days you worked a twelve hour shift at the coal-face, had to walk for an hour before and after work to even get to the coal face, plus time spent walking from home to the mine.
Oh, and they also worked a six-day week with only Sundays off and few (if any) public holidays. No wonder he jumped at the chance to do a plumbing apprenticeship in London when he got the chance!
If nothing else, history provides a sense of how well off people are these days (at least in the developed countries).
** The Household, Income and Labour Dynamics in Australia (HILDA) Survey report from Melbourne University.
* Just in case you don't have a copy of "The Golden Skits of Wing Commander Muriel Volestrangler FRHS Bar" handy, I'll append it here - its only 2 and a bit pages out of a 128 page book, so we'll call it "fair use" for educational purposes, shall we?
The Good Old Days Skit
by MV, Marty Feldman, Graham Chapman and Tim Brooke-Taylor; 'At Last the 1948 Show'.
31 October 1967
It is sundowner time at a tropical paradise. Four north-countrymen, in late middle-age and tuxedos, sit contemplating the sunset. A dusky waiter pours some claret for one of them to taste.
Joshua ...
Very passable. Not bad at all.
The waiter pours the wine for the rest of them, and departs.
Obadiah ...
Can't beat a good glass of Chateau de Chasselas, eh, Josiah?
Josiah Aye, you're right there, Obadiah.
Ezekiel .
..Who'd have thought .
.. forty years ago .
.. that we'd be sitting
here, drinking Chateau de Chasselas .
..?
Josiah Aye! ..
. In those days we were glad to have the price of a cup of tea.
Obadiah Aye, a cup of COLD tea .
..
Ezekiel Without milk or sugar.
Josiah OR tea ...
Joshua Aye, and a cracked cup at that!
Ezekiel We never had a cup ..
. We used to drink out of a rolled up newspaper.
Obadiah Best we could manage was to chew a piece of damp cloth.
Josiah But y'know ...
we were happier in those days, although we were poor.
Joshua BECAUSE we were poor ..
. My old dad used to say, 'Money doesn't bring
you happiness, son.'
Ezekiel He was right!
I was happier then and had NOTHING. We used to live in
a tiny old tumbledown house with great holes in the roof.
Odadiah A house!
You were lucky to have a house. We used to live in one room,
twenty-six of us, no furniture, and half the floor was missing. We
were all huddled in one corner, for fear of falling.
Josiah You were lucky to have a room! We used to live in the corridor.
Joshua Ooooh!
I used to DREAM of living in a corridor. That would have been a
palace to us. We lived in an old water tank in the rubbish tip.
We were
woken up every morning by having a load of rotting fish dumped on us.
House, huh!
Ezekiel Well, when I said HOUSE .
.. it was only a hole in the ground covered by
a couple of foot of torn canvas, but it was a house to US.
Odadiah We were evicted from our hole in the ground. We had to go and live in
the lake.
Josiah Eee!
You were lucky to have a lake. There were over 150 of us living in
a small shoe box in the middle of the road.
Joshua A CARDBOARD box?
Josiah Yes.
Joshua You were lucky. We lived for three months in a rolled-up newspaper in a
septic tank.
We used to get up at six, clean the newspaper, eat a crust
of stale bread, work fourteen hours at the mill, day-in, day-out, for
sixpence a week, come home, and dad would thrash us to sleep with his
belt.
Obadiah ..
. Luxury! We used to get out of the lake at three, clean it, eat a
handful of hot gravel, work twenty hours at t'mill for twopence a month,
come home, and dad would beat us about the head and neck with a broken
bottle, IF we were LUCKY.
A pause.
Josiah ..
. Aye, well, we had it TOUGH. I had to get out of the shoebox at
midnight, lick the road clean, eat a couple of bits of cold gravel,
work twenty-three hours a day at the mill for a penny every four
years and when we got home dad would slice us in half with a bread-
-knife.
A longer pause.
Ezekiel Right ..
. I had to get up in the morning at ten o'clock at night half
an hour before I went to bed, eat a lump of poison, work twenty-nine
hours a day at t'mill and pay boss to let us work, come home, and each
night dad used to kill us and dance on our graves, singing.
A very long pause
Joshua .
.. Aye, and you try and tell the young people of today that, and they
won't believe you.
Amid all the hoo-ha about the changes to "Simpler Superannuation" from July 1 this year are some less-pleasant, little-know aspects. For example, from 1 July all payments made out of superannuation will be treated as a mixture of undeducted and deducted amounts per the overall mix across all your superannuation accounts with a particular trustee. For example, if you had a total balance of $400,000 and $100,000 of this was due to "undeducted" contributions, any withdrawal after 1 July will be deemed to be 25% undeducted and 75% deducted.
What does this matter? Well, some people will have amounts within their superannuation accounts that they can withdraw at any time. Called unrestricted, non-preserved amounts, I think these are generally undeducted contributions made into superannuation prior to 1999.
(All contributions after then are preserved until retirement age). Currently, if you decide to withdraw an unrestricted, non-preserved amount you can nominate how much of the withdrawl is to be from the deducted and undeducted components of your superannuation account.
For example, of the $335,000 in my superannuation account, $55,000 is an unrestricted, non-preserved amount that I can withdraw at any time.
My undeducted amount is $34,000, so under the current rules I can withdraw $34,000 as an unrestricted non-preserved amount and don't have to pay any tax on that amount. If I withdrew the maximum possible ($55,000) I'd have to pay some tax on the $21,000 "deducted" component (which was contributed into the fund out of pre-tax salary).
However, if I withdrew the same $34,000 unrestricted amount after the new rules come into force on 1 July, the amount would be treated as roughly 90% (34K out of 335K) "deducted" and only 10% "undeducted" - and I'd have to pay around 20% tax on the $31,000 undeducted component.
So, withdrawing this $34,000 after 1 July would cost me an extra $6,000 or so in tax!
But wait, there's more..
.
Another other benefit of withdrawing $34,000 tax-free from my superannuation account before 1 July is that I could then use this amount over the next two years to replace around $48,500 of my taxable income (with a marginal tax rate of 30%), and I could therefore afford to salary sacrifice an extra $24,000 pa [1] into superannuation without reducing how much cash I have available to pay my bills. The benefit of doing this is two-fold.
Firstly, the salary sacrificed amounts will only be taxed at the 15% superannuation contribution rate, rather than my expected marginal tax rate of 30% (which applies to income between $25K-$75K). The second benefit is that be doing this large salary sacrifice my taxable income should be reduced from around $55,000 to around $30,000 and I'll then be eligible to get a government co-contribution of up to $1,500 if I make a $1,000 undeducted contribution into my superannuation account.
Current Situation If salary sacrifice an
extra $24,000 pa
Taxable Income $55,000 $31,000
Salary Sacrifice $10,400 $34,400
SGL contribution $ 7,400 $ 7,400 [2]
Income Tax due -$11,850 -$ 4,650
Super Tax due -$ 2,670 -$ 6,270
Super co-contrib $ nil [3] $ 1,300
(if make a $867 undeducted contribution)
Total after tax $58,280 $63,180
This means I'd end up with an extra $4,900 pa (tax saving and co-contribuction) by making the increased salary sacrifice.
However, this is only possible as I have the extra $34,000 tax-free withdrawal from my superannuation account to supplement my income for the next two years. Otherwise my after-tax "take-home pay" would have been reduced from $43,150 to only $26,350.
By making these arrangements I'll end up with the following over the next two years:
Current Situation New Situation
Super Balance $335,000 $301,000 (withdraw $34,000)
Take-home pay $43,150 $31,000 (salary sacrifice)
Super withdraw nil $17,000 pa (split over 2 years)
Total cashflow $43,150 $48,000
Super contrib.
$17,800 pa $43,100 pa
Super tax. -$ 2,670 pa -$ 6,270 pa [4]
Super balance $365,260 $374,660
after two years (ignoring earnings)
The only material impact of thisarrangement will be that the ratio of undeducted:deducted money in my superannuation account will be higher if I withdraw $34,000 of undeducted funds and recontribute via salary sacrifice (deducted funds). However, as all pension payments made from a superannuation account after you retire (and are over 60) are tax-free under the new "Simpler Super" rules, this shouldn't have any real effect in the long run.
Notes:
[1] Under "Simpler Super" there will be an overall cap of $50K pa in deducted contributions - so you have to make sure your total of salary sacrifice and employer SGL amounts doesn't exceed this.
[2] My employer calculates the required 9% superannuation contribution levy based on my original salary (ie. before salary sacrifice is deducted).
Legally it is possible for an employer to only contribute 9% of the actual salary paid (ie. after deducting the amount salary sacrificed). So it's important to check this with your employer before making salary sacrifice arrangements.
[3] The government superannuation co-contribution (up to $1500) is available on a 1.5:1 basis for undeducted contributions made into superannuation by employees with incomes up to $28,000. For incomes above $28,000 the maximum amount reduces until for incomes over $58,000 you're not eligible.
[4] There's no 15% contribution tax on the government co-contribution
DISCLAIMER: I'm not a financial planner, accountant, tax lawyer or in any position to give advice. This is just information about what I'm currently planning to do, and what I *think* the implications are. I checked my superannuation details (unrestricted non-preserved balance and undeducted component) with my superannuation fund, and I asked the Australian Tax Office "Simpler Super" help line about whether the new rules treating all withdrawals as being in the same undeducted:deducted ratio as the overall account would apply to unrestricted, non-preserved amounts.
The ATO help line rep didn't know, and he had to go ask a "specialist" in this area to come back with the opinion that yes, this rule seemed to apply to all withdrawals by persons under age 60. As the ATO only gives binding private rulings about income tax questions and not superannuation, this seems about as definitive an answer as I can obtain. You could get professional advice from a financial planner, if so make sure that they really know the answer (since the ATO wasn't even sure!
).
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