InFocus: Clearing the decks of superannuation loose-ends

If anyone doubted the Government wants to keep its options open with respect to the timing of the next Federal Election then they need only have looked at the Federal Budget, the treatment of superannuation and the relative silence of otherwise restive backbenchers.

Nothing announced on superannuation in the Budget was new. The various superannuation industry representative organisations had been lobbying the Government for years to fix things such as abolishing the $450 a month income threshold, removing the superannuation contribution work test for those aged between 67 and 74 and allowing legacy product conversions.

There were, of course, tweaks to more recent Government superannuation policy initiatives such as allowing a higher withdrawal limit for the First Home Super Saver Scheme and lowering the age threshold for the super downsizer scheme but they were refinements to things which needed to be made to work more effectively.

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Then, too, there was no announcement of a change to the time-table for increasing the superannuation guarantee to 12% meaning that in all likelihood the next 0.5% rise to 10% will go ahead as expected.

The point if that none of these measures will have a major impact on the Budget itself with most of them coming at negligible cost with the cost of the First Home Super Saver Scheme have been estimated to cost just $25 million when it ultimately comes into effect from 1 July, next year, while the abolition of the work test for those aged between 67 and 74 will cost just $33.7 million

And, indeed, measures such as legacy product conversions and the removal of the $450 a month income threshold are likely to have some positive benefits in circumstances where they have proved administratively costly over a number of years.

Organisations such as the Financial Services Council (FSC) had been lobbying successive Governments for years on the question of legacy products, not just in the superannuation sphere but with respect to life insurance and other financial services offerings.

Under the proposed new arrangements a two-year period will be provided for conversion of market-linked, life-expectancy and lifetime pension and annuity products and, importantly, it will not be compulsory for individuals to take part.

Retirees who choose to will be able completely exit these products by fully commuting the product and transferring the underlying capital, including any reserves, back into a superannuation fund account in the accumulation phase. From there they can decide to commence a new retirement product, take a lump sum benefit, or retain the funds in that account.

Any commuted reserves will not be counted towards an individual’s concessional contribution cap and will not trigger excess contributions. Instead, they will be taxed as an assessable contribution of the fund (with a 15% tax rate), recognising the prior concessional tax treatment received when the reserve was accumulated and held to pay a pension.

Equally, just about every superannuation industry lobby group including the Association of Superannuation Funds of Australia (ASFA) and the Australian Institute of Superannuation Trustees (AIST) had been lobbying for years for the removal of the $450 a month income threshold.

For many of those who had been tracking Coalition rhetoric around superannuation over the past 18 months the most surprising thing from the Budget might have been the relative silence of those who had been strong advocates of COVID-19 hardship early release superannuation and who have been advocating for the use of superannuation for first home deposits.

Those advocates, including the chairman of the House of Representatives Standing Committee on Economics, Tim Wilson, and former FSC policy executive and now NSW Liberal Senator Andrew Bragg, remained silent as the Treasurer, Josh Frydenberg, and the Prime Minister, Scott Morrison, got on with the job of selling the Budget.

How long the advocates of using super for home deposits remain silent seems likely to depend on the Government’s electoral timetable but, for now, the Government has succeeded in tidying the superannuation loose ends and in doing so has largely cleared the decks to go to the polls at a time of its choosing.




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