The Australian Government’s superannuation changes announced on April 5 ended extended speculation in the industry and in Canberra but did little to quell the longer-term uncertainty about the taxation of super. Proponents are using the term “sustainable”. Opponents are using the term “class warfare”.
While there was some removal of tax concessions on superannuation income, the introduction of the Council of Custodians of Superannuation, which will be charged with the Charter of Superannuation Adequacy and Sustainability, should also provide some security for the superannuation system in the years ahead.
The Custodians of Superannuation will include senior representatives from industry and also the regulators.
But membership is yet to be finalised and at least one major representative body was not aware of the intention to establish the council.
The major uncertainty, however, comes from the fact that the Government is unlikely to attempt to legislate the changes prior to the election. Rather, the proposals will become part of the election campaign debates. So, whether or not they ever become law depends on your view of the Government’s chances for re-election, which you would have to think are, at best, remote.
When announcing the changes, Minister for Superannuation, Bill Shorten, said: “The charter will enshrine and make clear the core values and principles and the commitments that Australians expect from governments of all political stripes when implementing superannuation policy.”
“The council will be charged with assessing all future policy against the charter and providing a report to Parliament – a report to be tabled in Parliament when changes are under debate. The council will also provide at least an annual report on the superannuation system against the charter which will also be tabled in the Parliament.”
For big super funds, the changes will have the relative benefit of reducing slightly the attractiveness of the SMSF market. This is because there are very few members of big funds, if any, with account balances of more than $2 million. Treasury estimates 16,000 individuals, out of a universe of 4.1 million retirees, are in this category but almost all would already be in the SMSF market.
AIST chief executive, Tom Garcia, welcomed the changes and the introduction of the council but hasn’t yet been asked to be on it.
“I wasn’t aware of the creation of this council and we haven’t been approached as yet.”
Garcia said the current Super Roundtable, which has 18 representatives of industry including Shorten, but no regulator representatives, would be a good place to start to draw people for the Council.
“The Super Roundtable, I would suggest, has got all the elements in it and that would be a natural starting point.”
If it is a guide to a future change, under a different Government, the removal of the tax concessions on superannuation income above $100,000 for funds in pension phase, was a lot softer that expected, although some questioned the government’s estimation that it would only affect people with superannuation balances of $2 million or more.
That assumes earnings of just 5 per cent, which sounds fairly conservative. Earnings of 6 per cent would hit superannuants with balances of $1.67 million and returns of 7 per cent would mean those with balances of less than $1.5 million, or $1.43 million, would have their earnings taxed at 15 per cent rather than the current zero percent.
Other changes include the increase in the concessional contributions cap to $35,000 for people over 60. Individuals who mistakenly make excess contributions above the concessional limits will also now be able to withdraw those amounts and contributions made above the concessional limits will be taxed at an individual’s marginal rate (plus a small interest charge) not the highest marginal rate.
AIST is relieved that there were no major structural changes to the system.
Because of a long phase-in time, applying to capital gains accruing after 2024 for assets purchased prior to the announcement, there is unlikely to be an immediate impact on the SMSF market either. Longer term, if the changes become law – and given the average account balance in the SMSF market is close to $1 million – they will take a little of the shine of investing through a super vehicle.
Article by Greg Bright