The Government estimates that around 115,000 people will be affected by the Transition to Retirement pensions changes proposed in the 2016 Budget.
Superannuation policy is again a focus in the election campaign, this time on the changes to Transition to Retirement pensions (variously shortened to TTR or TRIS).
“The change will affect 115,000 to the transition to retirement income stream. That is based on the Productivity Commission analysis which says just 5% of superannuants aged between 55 and 64 have these schemes,” said Treasurer Scott Morrison.
“We are not abolishing the transition to retirement income stream system, it is important for those who are moving through that process and scaling down their work. The Productivity Commission also found the overwhelming majority of people who are engaged in these schemes are working full-time.”
All three Treasury ministers have been doing the rounds of media interviews trying to fix up the trouble caused by Foreign Minster Julie Bishop’s interview on 3AW.
The 2016 Budget includes a measure to remove the tax concession on super fund income supporting a TTR pension. Currently this income is not taxed, under the Exempt Current Pension Income (ECPI) rules. If enacted as set out in the Budget from 1 July 2017 super funds would pay tax on this income at 15%.
Minister for Small Business and Assistant Treasurer Kelly O’Dwyer told Radio National Breakfast that there are “around about” 115,000 people currently with TTR pensions, about 80,000 of which have SMSFs. How many people are actually affected by the policy – if it is enacted – depends on how many of these existing pensions cease or covert to full account-based pensions and how many new TTR pensions are started.
O’Dwyer said these figures are included in the modelling of who will be affected by the Budget changes.
The Treasurer said in the Budget speech that 96% of Australians with superannuation “will be unaffected by or be better off as a result of the superannuation changes we have announced tonight”.
Finance Minister Mathias Cormann said the Government was standing by the figure of 4% of Australian being worse-off.
“When it comes to the transition to retirement, and we got to remember what this was designed to do. It was designed to help those people who approach with time and who were reducing their working hours to draw an income stream out of their superannuation after they had reach the relevant age but were still continuing to work at least part time,” he told the ABC AM program.
“Increasingly what’s been happening is that people use it to draw a tax free income stream from superannuation, right, continuing to work full-time as well and what we’ve done in the budget, it’s really an integrity measure to align the tax treatment of earnings in the accumulation phase, a pre-actual retirement.”
“Making it 15 per cent across the board, which is what applies to everybody else that continues to contribute and generate earnings in the accumulation phase.”
Members of the Government have repeatedly been asked if the change to TTR pensions will affect people on lower incomes. It should be noted that the Treasurer said the policies would result in 4% of Australians being worse-off, but not that these were the top 4% of income earners. When asked about this Government Ministers tend to refer to the superannuation changes for low income earners and say that superannuation is still concessionally taxed.
Correction: While the Treasurer didn’t say in the Budget speech that the 4% affected by the superannuation changes was the top 4% of income earners the Prime Minister has made such a statement. “Our reforms to superannuation, which affect only the 4 per cent of highest income earners, in any negative way or adverse way, these reforms make our superannuation system fairer and more flexible,” said the PM following the Budget.
“There’s still a highly concessional tax treatment and it’s obviously part of a broader package which is designed to make superannuation tax arrangements fairer and more sustainable,” Cormann said on AM.
When it was put to the Treasurer that some people with Transition to Retirement pensions earn less than $100,000 a year he replied: “Remember what the scheme is for – if someone has a low balance or a low income you would have to ask the question why someone would be advising them to draw down on a low balance superannuation account when that’s the superannuation account they’re going to be relying on in their retirement. And one of the reasons we’re changing this scheme is to ensure that the TRISS measures are only used by those in a position where it is suitable for their circumstances.”
Greens Senator Sarah Hanson-Young has also been unclear on the Greens superannuation policy, confusing if the policy was to tax super fund income or superannuation contributions at marginal tax rates on 891 ABC Adelaide. The Greens policy is to apply progressive tax rates to superannuation contributions.
Update: The Coalition may yet change its superannuation policy, potentially after the election. Cabinet Secretary Arthur Sinodinos has told Sky News: “If we win the election, there will be consultation on various changes and then legislation presented to the party room.”