Most financial planners could be excused for thinking that things have gone a little quiet in the world of superannuation.
With the Federal Government’s much promised major review of the superannuation system seemingly forever on the backburner, and its choice-of-fund proposals almost a distant memory, it is not hard to see why many planners might have given up on seeing anything new happen in superannuation.
But such a view may ignore the largely forgotten superannuation policy changes the Government announced during the last election, many of which are due to take effect from July 1 this year.
The low profile of the Government’s superannuation election promises amongst financial planners is in part warranted.
The changes, for example, include a proposal for the Government to make a co-contribution on a dollar-for-dollar basis up to a maximum of $1,000 for those who make voluntary contributions to superannuation.
However, only individuals earning less than $20,000 a year will be eligible for the full $1,000 co-contribution and the incentive becomes unavailable completely for anyone earning more than $32,000 a year.
The measure does in fact have the potential to encourage greater savings into superannuation by low-income earners.
But even those few low-income earners who can afford to make a $1,000 contribution into superannuation are unlikely to fit the typical profile of most financial planners’ client base.
The same can be said for the Government’s proposals to allow individuals to contribute up to $1,000 a year into the superannuation account of a child. It is a worthy, if slightly limited, proposal with very little to excite financial planners.
But this is not to say the Government’s superannuation proposals are totally devoid of interest for financial advisers. In fact, far from it.
Take for instance the Government’s proposal to allow couples to split their superannuation contributions.
Under the proposal, individuals will be able to have either their personal or employer superannuation contributions paid into a separate account in the name of their spouse.
The proposal applies only to new contributions made after July 1, 2003, and not to existing superannuation account balances. The policy will also not allow couples to split surcharge liabilities.
But groups like BT Funds Management (BTFM) are already making a point of highlighting to financial advisers that the changes will create significant financial planning opportunities, especially given clients will now have access to two sets of Reasonable Benefit Limits (RBL) and two sets of superannuation tax-free thresholds.
BT has in fact conducted modelling that proves, given the right advice, individuals of all ages will end up with a better superannuation end benefit if they split their contributions with their spouse.
“Strategies that enable a couple to maximise the amount of the final super benefit … should be enhanced by splitting that benefit between two individuals,” BTFM head of technical services Alyson Clarke says.
Then there is the proposal to increase from 70 to 75 the age that gainfully employed people can make personal contributions to superannuation.
While there are still issues with this proposal relating to the definition of ‘gainfully employed’, there is no doubt that, like the proposal to allow couples to split their superannuation contributions, the policy creates attractive planning opportunities for advisers.
“This measure allows an extension of many popular pre-retirement planning strategies, such as making additional un-deducted contributions prior to commencing a retirement income stream, or cashing out and recontributing existing super benefits to increase tax-free retirement income,” Clarke says.
There is also the Government’s proposal to increase tax deductions for the self-employed, who are less likely to contribute to superannuation than any other sector of the workforce.
Currently, self-employed people are entitled to a tax deduction for the first $3,000 of contributions they make to superannuation. The Government has announced it will increase this limit to $5,000.
According to AM Corporation’s national manager of strategic services Philip La Greca, this extra $2,000 invested into superannuation every year for 20 years will mean an increase in the retirement benefits of the average self-employed person from $108,000 to $180,000.
“From a financial planner’s point of view, this should make it easier to convince clients who are self-employed to use superannuation,” La Greca says.
Taken in their entirety, such changes also have the potential to evolve beyond their current guise into the type of wide-scale reform of superannuation the industry, and the Association of Superannuation Funds of Australia (ASFA) in particular, has been pushing for.
ASFA recently announced it had given up on calling for the Government to conduct a wholesale review of superannuation, although the association’s commitment to wide-scale reform of the sector remains constant.
“Our thinking was that by continually saying that we want a big review of superannuation, the whole topic became too big and too difficult. We thought that rather than making the hurdle too big, we were more likely to achieve all our reform goals in bite sized-bits,” ASFA chief executive Philippa Smith says.
The Government’s election package of superannuation proposals presents ASFA, as well as other interested parties, with just such an opportunity to follow the path of incremental reform.
For instance, the Government’s offer of co-contributions to low income earners may seem limited now, but it could be viewed as a first step in convincing the Government to adopt a much wider policy of contributing to the superannuation savings of individuals.
In fact, ASFA has proposed just such a policy in its pre-budget submission to the Government.
The attention of the superannuation industry now truly does turn to next week’s budget, where the expectation is that the Government will confirm funding for all the superannuation policy changes it announced during last year’s election.
If that sounds like the budget will be an essentially uneventful one where superannuation is concerned, think again.
The Superannuation Working Group, a Government committee headed by former ANZ chief executive Don Mercer, is understood to have already completed its report to the Government on the regulation of the superannuation industry.
This has created an expectation that the Government will use the budget to announce significantly tougher regulations for the management of superannuation funds, including more stringent licensing requirements for super fund trustees.
It seems where superannuation is concerned, there is rarely a dull moment.