Superannuation resetting course post-election
Elections introduce uncertainty at the best of time. This year’s federal election was no exception and there were a host of proposed superannuation changes which exasperated the uncertainty.
Uncertainty can erode confidence in our superannuation system, and it is important that members of superfunds have confidence in their attempt to provide for their retirement. If government wants to lower its citizen’s dependence on the age pension, then there needs to be a high level of confidence in the system, which translates to not tinkering too much with the rules. Ad hoc changes and moving the goal posts has been one of the issues proving a distraction to retirement planning. Australia has an internationally well-placed retirement system so it’s not all bad. It just needs a few tweaks to make it better.
Most observers took their eyes off what the current government was proposing as all eyes were on the ALP policy direction. This was perfectly understandable given the polls were predicting that there would be a change in government. Most observers focused on the opposition policy front and took little notice of what was announced in the April 2019 federal budget
The ALP superannuation policies were in part going to reverse some of the recent changes, such as deductibility of concessional contributions and revert to the previous arcane and highly discriminative 10 per cent rule. The removal of this unfair restriction took a lot of effort to bring this recent change to fruition and it would have been extremely disappointing if was unwound as it prohibited some taxpayers from taking advantage of the universal contribution cap.
The ALP was also planning to unwind the concessional contribution catch up rule and reduce concessional and non- concessional super contributions caps. It also proposed to lower the income threshold for super surcharge from $250,000 to $200,000.
The banning of LRBA was also part of their reform agenda. Whilst not a direct superannuation change, the denial of excess franking credits was also lurking in the background which would have had huge implications on investment strategies and attractiveness of setting up and maintaining an SMSF structure.
Now that we have a return of government, the muted changes are off the table and we are awaiting confirmation of the superannuation reform agenda under a re-elected LNP government. What we now know is that we have a new minister at the helm. Jane Hume is the Assistant Minister for Superannuation, Financial Services and Financial Technology and she will have direct carriage over superannuation.
We also had a number of bills with superannuation changes that lapsed as a result of the election. There were also some matters that were under consultation prior to the election such as the three-yearly audit for some SMSFs. We are hopeful that after much consultation, that this initiative will be cremated and buried never to be discussed again in our lifetime. There is also the current government policy intent of increasing the maximum number of SMSF members from four to six. We will need to wait to see whether this remains a priority of the government in their new term of office.
At the time of writing, we are now starting to see some of those lapsed bills resurfacing into Parliament and the first cab out of the rank is Treasury Laws Amendment (2018 Superannuation Measures No. 1) Bill 2019. This bill contains a number of measures which had lapsed when the election was called in April.
This bill reintroduces an employer shortfall exemption certificate for high-income earners with multiple employers, a measure to include the outstanding value of LRBAs in the total super balance for certain SMSF members and also extends the existing non-arm’s length income rules to capture non-arm’s length expenses. The SG amnesty, which was intended to provide employers with a 12-month window to rectify past SG non-compliance, has not been included in this bill. Whilst there is a lot of support for the measure, what we know is its passage through Parliament would have been problematic, as the ALP is clearly opposed to any lessening of the SG penalty regime for non-compliant employers.
Another measure which also lapsed and has now resurfaced relates to the ability for employers to offset salary sacrifice super contributions against the employer’s SG charge. In addition, if an employee has entered into a salary sacrifice arrangement their employer can use the lower post salary sacrifice earnings base to calculate the employees SG entitlement.
Both these practices amount to legalised SG theft. These issues first surfaced in 2016 and an amendment to remove this legal loophole was originally contained in the Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No.2) Bill 2017 which lapsed prior to the election.
The amendment to address this loophole is contained in another bill with six other non-super integrity measures. Treasury Laws Amendment (2019 Tax Integrity and other measures No.1) Bill 2019, includes measures to ensure that salary sacrificed amounts cannot reduce an employer’s SG liability. The amendment unfortunately only applies as from 1 July 2020.
It is criminal that this option is still available to employers for another year. Closing this legal loophole which has been used by some employers to short-change employees should have been done previously. The Senate economics committee held an inquiry into this bill and the IPA strongly advocated that employers have had ample warning time to adjust their business practices and that this amendment should apply from the start of this financial year namely, 1 July 2019.
The other major bill that lapsed was the all-important Objectives of Super Bill 2016. This bill wanted to enshrine the primary objective for super. It was defined as “To provide income in retirement to substitute to or supplement the age pension”.
There was a fair amount of criticism around the definition
at the time, mainly around the proposed definition not been aspirational enough.
Notwithstanding, it is vitally important to have an agreed definition enshrined in law. Many are hopeful that if this step was taken it would make it harder for any political party to make constant ad hoc changes. Superannuation represents an irresistible honey pot of money.
Who can blame any government for trying to dip their hands into people’s retirement nest eggs when it is being justified on the basis that we need to bring the budget back into surplus.
The government has announced its intention to proceed with a retirement income review and we suspect that this will encompass the objective of superannuation so stay tuned. There is also debate around the timing for increasing the current level of SG from 9.5 to 12 per cent. The level of SG payable by an employer will be driven in part by what we agree will be the objective for superannuation, so there will be a lot of interest in this review as it may reset the goal posts for retirement planning.
Whilst the Treasurer announced the retirement income review, the Prime Minister Scott Morrison has weighed into the debate and has stated that there will not be any major changes to our superannuation system as the review will only provide recommendations for the government to consider and will not form policy in the short term. This may mean that recommended changes form part of what will be taken to the next election.
The retirement income review may take a holistic approach, and this could include sensitive issues such as the exempt status of the family home for aged pension purposes.
Tony Greco FIPA, general manager of technical policy, IPA