Budget 2014: Superannuation promise broken

The Abbott government promised that there would be no “adverse unexpected changes to superannuation during our first term”, and now that Joe Hockey has presented his first budget it seems this promise has been broken. While they didn’t all make the budget speech there are important changes to superannuation buried in the budget papers, the most wide-reaching of which is a slowing in the increase to the Superannuation Guarantee.

Superannuation Guarantee increase to slow

The current legislation has the Superannuation Guarantee increasing to 9.5% from 1 July 2014. The government had intended to delay this to 1 July 2016 under the Minerals Resource Rent Tax Repeal and Other Measures Bill 2013. However after this bill failed to pass the senate the government has decided to not change the currently scheduled increase in order to “give certainty to employers and employees”. However the increase in the SG rate will be further slowed – with the 9.5% rate to stay in place until 30 June 2018 and then increase at 0.5% per year until it reaches 12% in 2023/24. This is an even slower increase than that proposed in the Repeal bill, as shown in the following graph:

Slower increase in Superannuation Guarantee from 9% to 12%

 Source: Budget Measures Budget Paper No. 2 2014-15, ATO Website and APH website.

Paul Keating proposes Longevity Levy to supplement Super Guarantee

The former Prime Minister Paul Keating has made an argument for both increasing the Superannuation Guarantee and creating a safety net for after super runs out, noting “You can’t save under super for 30 years or 35 years and then live another 30 years off from it”.

In an interview with Lateline Paul Keating proposed a ‘longevity levy’ of 2-3% of wages to fund an insurance scheme for the provision of “income support, aged care and aged accommodation”. An alternative also proposed would involve changes to the preservation rules so money remained in super for longer, or as Mr Keating put it “to quarantine, say, 25 per cent of it where preservation rules would apply where they can’t touch it till 80”.

Recent comments in a speech by the treasurer Joe Hockey have also drew attention to the adequacy of superannuation: “despite spending billions of dollars in taxation benefits for superannuation, by 2050 the ratio of Australians receiving a full or part pension will still be around four out of five”.

However when the Superannuation Guarantee was introduced by the Keating government in 1992 it was at 3%, and only reached 9% in 2002/03:

Historical rates for Superannuation Guarantee

IPA: Increase contributions caps, remove work test & 10% rule

SMSF & Superannuation NewsThe Institute of Public Accountants (IPA) has made a number of recommendations for improving the superannuation system to the Financial System Inquiry:

  • Increasing the Concessional Contributions Cap
  • Maintaining the Low Income Superannuation Contribution (LISC)  or increasing the Co-Contribution
  • Removing the 10% rule for personally deducted concessional contributions
  • Removing the work test
  • Introducing a “life-time concessional contributions cap”
  • Introducing a deductible spouse concessional contribution
  • Policies to encourage annuities and life pension products
  • Increase access to a low rate cap lump sum, changes to taxation of withdrawals above a limit
  • Increase the amount that can be withdrawn under the hardship provisions
  • Lower the minimum pension draw-down limits
  • Remove the requirement for a bare trust under a  Limited Recourse Borrowing Arrangement
  • Move the Small Business Superannuation Clearing House to the jurisdiction of the ATO
  • Increase the employee limit of the clearing house to 100
  • Allow for employee superannuation to be paid through BASs

The full submission can be found here (PDF) which includes many other, non-super, recommendations.

Current State of Superannuation Changes – April 2014

Superannuation Legislation & Updates

An update on the current state of superannuation changes passed, working their way through parliament, or un-legislated.

Passed

Deeming Rules

The extension of the deeming rules to Account-Based pensions was passed as part of the Social Services and Other Legislation Amendment Bill 2013.

Pending

Superannuation Guarantee and Low Income Super Contribution

Two announced super changes are contained in the Minerals Resource Rent Tax Repeal and Other Measures Bill 2013, the slowing of the increase to the Superannuation Guarantee and the cancelling of the Low Income Superannuation Contribution. However this bill is currently marked as ‘Not Proceeding’ on the APH website, due to it not passing the Senate. It is expected this bill will reappear in one form or another in 3 months time or after the new senate takes over.

FSI Submissions – Preservation Age

The Financial System Inquiry (the Murray Inquiry) has begun to release the submissions received, several of them have raised the issue of increasing the superannuation Preservation Age and aligning it with the Age Pension age.

The Financial Services Council recommends “the superannuation preservation age be increased”, noting the findings of the Grattan Institute that increasing both the Preservation Age and Age Pension age to 70 by 2035 could save 15 billion dollars. It was further noted that aligning the Age Pension age and Preservation Age was supported by the Henry Tax Review and the the Productivity Commission, which reported that: Read more...

FSI Submissions – Education and Financial Literacy

The Financial System Inquiry (the Murray Inquiry) has begun to release the submissions received, many of them address issues surrounding financial education and literacy.

The issue of education and financial literacy has been raised in several submissions to the Financial System Inquiry.

The National Australia Bank recommends the development of a ‘national education programmes for retail investors, retirees and self-managed superannuation funds (SMSFs) on diversification, sequencing and risk/return trade-offs.’ Read more...

FSI Submissions – SMSF Compensation Scheme

The Financial System Inquiry (the Murray Inquiry) has begun to release the submissions received, so far several have made recommendations in support of a SMSF Compensation Scheme.

Westpac Bank, in its submission,  supports consideration of a legislative SMSF compensation scheme – provided it was confined to fraud and theft. Westpac is concerned that there are ‘questions about the degree to which SMSF members are aware of the risks to which they are exposed’ and that future losses by SMSFs may result in calls for government compensation and increased demand for the Age Pension: Read more...

FSI Submissions – SMSF Borrowing and LRBAs

The Financial System Inquiry (the Murray Inquiry) has begun to release the submissions received, many of them make recommendations about SMSF borrowing and Limited-Recourse Borrowing Arrangements (LRBAs).

The Financial Planning Association (FPA), noting that SMSF borrowing has been a ‘controversial issue’ with implications for the residential property market, recommends ‘the Government follows Cooper’s recommendation and undertakes a formal review of the decision to allow SMSFs to gear up property in their fund. ‘ Read more...

FSI Submissions – SMSF Regulation

The Financial System Inquiry (the Murray Inquiry) has begun to release the submissions received. Several industry bodies have used their submissions to argue that changes to how SMSFs are regulated is not required.

CPA  ‘ believes there is no evidence to suggest significant change is necessary regarding the structure, operation and/or regulation of SMSFs’.

ICAA believes ‘any further substantial regulation around the SMSF segment is unwarranted, creating artificial barriers to those wishing to control their own superannuation savings ‘. Read more...