Future Of Superannuation
In a recent address, the Assistant Treasurer and Minister for Financial Services, Stephen Jones, outlined the changes the government will be pursuing in terms of superannuation. From its beginnings in 1992, superannuation collectively has become a juggernaut and has grown to encompass over $3.3 trillion in assets held by an estimated 16m Australians. That figure makes Australian superannuation the world's third largest pension pool.
As the world's economy is challenged by war, the effects of the ongoing pandemic, energy scarcity, and possible recession in dominant economies, it is perhaps no surprise that the government is looking to this large pool of money to work in both the national interest and the interests of superannuation members where possible.
To that end, one of the main changes the government will be focusing on in terms of superannuation is to legislate an objective for super. A Bill was previously introduced in 2016 that proposed to enshrine the primary objective of the super system in legislation, which is to provide income in retirement to substitute or supplement the age pension. It would have also required all new Bills relating to super to be accompanied by a statement of compatibility with the objective of the super system. This Bill subsequently lapsed ahead of the 2019 election and was never reintroduced.
Having a clear objective of super, Mr Jones, notes will break the vicious cycle of plans to raid super such as drawing on super to pay for housing, HECs, or living expenses which have all been proposed at various stages in the past few years. According to Mr Jones, once this objective is settled on, important conversations around the taxation of super can also be had.
The government estimates that there are 32 SMSFs with more than $100m in assets, with the largest SMSF having over $400m in assets. Industry estimates also indicate that the tax concessions on a single $10m SMSF could support 3.1 full age pensions. It is with this background in mind that the government is looking to have a conversation around the concessional taxation of these high asset SMSFs which have an obvious cost to the Budget.
"If the objective of super is to provide a tax-preferred means for estate‑planning, you could say it is doing its job…Those who support the status quo will need to demonstrate how concessional tax arrangements for high balance super funds meet the common objective. Those who argue for change will need to show how that approach meets the objective." - Assistant Treasurer and Minister for Financial Services, Stephen Jones.
The other change the government is looking to make in the super area will stem from the results of the review into Your Future, Your Super (YFYS) laws. It was initiated to ostensibly remove "unintended consequences" and keep the focus on "high performance". A consultation paper has been released and the government has also established a Technical Working Group in addition to public submissions and stakeholder consultations.
It should be noted that paradoxically, in order to conduct the review to keep the focus on high performance, the government paused the extension of the existing ARPA performance test to Choice products for 12 months. The performance test therefore currently only applies to MySuper products which represents around $13.7m accounts. Super members in other types of products will not have access to the same independent APRA performance analysis unless the consultation concludes thus.
According to Mr Jones, "[t]he performance tests, conducted by APRA, must and will continue. Trustees need to be held to account because it is about 'Your Future'. We also need to ensure members have meaningful information so that they can hold their funds to account and make informed decisions about their retirement.". Hence, it appears that the performance tests will continue in one form or another into the future with perhaps different benchmarks.
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With the government keen to proceed with various reforms, including super concessions, it is important to stay up to date with all the developments that could affect you and your retirement. We can help you sort out what is relevant to you and keep you in the loop. Contact us today.
