The Bank of Queensland, in its submission to the Senate committee investigating proposed changes to the FoFA reforms, has raised the issue of increased regulation to protect consumers, including SMSF real estate investors, from property promoters. Calling the different regulatory approaches between real estate and other investments an “anomaly” BOQ recommends that “advice on the purchase of real estate, other than for owner occupiers, be included in the definition of financial advice”. This would provide a “consistent framework” and there is no “valid reason for the financial services licensing system not to apply to advice with respect to real estate investments”. Part of this concern comes from BOQ seeing unregulated real estate investment advice driving consumers into SMSFs which are inappropriate for them, including because the “fund too small to be economic” or the “consumer is not equipped to be a trustee”.
Industry response to the 2014 Budget has been mixed, with support for changes allowing withdrawal of excess non-concessional contributions and providing certainty for the increase of the Superannuation Guarantee to 9.5% from 1 July 2014. However the response has been broadly negative to the slowing of the SG rate beyond that which was contained in the Minerals Resource Rent Tax Repeal and Other Measures Bill 2013.
Industry Super Australia says the changes in the budget will “result in a 25 percent reduction in total retirement incomes for someone aged 45 today on average earnings”, and instead proposes revisiting the recommendations of the Henry Tax Review.
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:
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:
The 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.
An update on the current state of superannuation changes passed, working their way through parliament, or un-legislated.
The extension of the deeming rules to Account-Based pensions was passed as part of the Social Services and Other Legislation Amendment Bill 2013.
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.
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… Read More »FSI Submissions – Preservation Age
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… Read More »FSI Submissions – Education and Financial Literacy
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… Read More »FSI Submissions – SMSF Compensation Scheme
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… Read More »FSI Submissions – SMSF Borrowing and LRBAs