Changes to superannuation in the 2019/20 Budget at a glance:
- Raising the age at which the Work Test applies
- Extending non-concessional contribution bring-forward to ages 65 & 66
- Raising age limit for spouse contributions
- Streamlining ECPI
- SuperStream for rollovers for SMSFs delayed, rollover standard to be expanded
- Delayed start for Protecting Your Super insurance changes
- Extra funding for ATO to chase unpaid super
- Super fund merger tax relief to be made permanent
- Superannuation Consumer Advocate
- Funding for SCT to complete casework
- Choice for ADF Super members leaving forces
Though these are only proposals, likely none of which will be legislated before the Federal Election. Even then the Government has had difficultly in passing its measures through the Parliament; it moved to drop one of its 2018/19 superannuation measures – increasing the SMSF member cap – from a Bill on Budget day (see below).
The superannuation industry has welcomed the changes announced, but describe the Budget as a missed opportunity to implement reforms.
2019 Budget superannuation changes
Raising the age at which the Work Test applies
Changes to the Work Test was one of the superannuation announcements made by the Government ahead of the release of the 2019 Budget.
The Government is proposing that, from 1 July 2020, people aged 65 or 66 will be able to make voluntary superannuation contributions – both concessional and non-concessional – without having to meet the ‘Work Test’.
The Work Test restricts older Australians from making voluntary super contributions unless they have had 40 hours of gainful employment in 30 consecutive days.
“This means that Australians aged 65 or 66 years who don’t meet the work test, because they may only work one day a week or volunteer, will now be able to make voluntary contributions to their superannuation,” said Treasurer Josh Frydenberg.
“This will align the Work Test with the eligibility age for the Age Pension, which is scheduled to reach 67 from 1 July 2023.”
Around 55,000 Australians are expected to benefit from this change in 2020/21.
The Coalition had announced a complete repeal of the Work Test in a previous budget, but this was dropped to raise money for other measures. More recently the Government implemented a limited exemption from the Work Test.
“The Morrison Government is taking action to help Australians boost their retirement savings by giving them greater flexibility as they near their retirement years,” said Frydenberg.
Bring-forward contributions to be open to people aged 65 and 66
The Government is also proposing that people aged 65 and 66 will be able to use the non-concessional contribution bring-forward rule.
“We will also extend access to the bring-forward arrangements, which currently allow those aged less than 65 years to make three years’ worth of non-concessional contributions, which are capped at $100,000 a year, to their super in a single year. This will now be extended to those aged 65 and 66,” said the Treasurer.
Raising age limit for spouse contributions
The Government would also increase the age limit for spouse contributions from 69 to 74.
“Currently, those aged 70 years and over cannot receive contributions made by another person on their behalf,” Frydenberg said.
“The Government will reduce costs and simplify reporting for superannuation funds by streamlining some administrative requirements for the calculation of exempt current pension income (ECPI),” says the Budget papers.
Under the proposal, super funds with interests in both accumulation and retirement phases will be able to choose which method they use to calculate ECPI.
“The Government will also remove a redundant requirement for superannuation funds to obtain an actuarial certificate when calculating ECPI using the proportionate method, where all members of the fund are fully in the retirement phase for all of the income year.”
It is proposed these changes will apply from 1 July 2020.
SuperStream for rollovers for SMSFs delayed, rollover standard to be expanded
SuperStream will be expanded to include superannuation release authorities.
“This change, which will take effect from 31 March 2021, will be implemented by expanding the electronic SuperStream Rollover Standard used for the transfer of information and money between employers, superannuation funds and the ATO.”
As part of this change, the start date for SMSFs to use SuperStream for rollovers will be delayed until the same date – 31 March 2021. Previously it was proposed that using SuperStream for rollovers would be extended to SMSFs from 30 November 2019.
Delayed start for Protecting Your Super insurance changes
The Government would delay the start date for making insurance in superannuation opt-in for small balances (under $6,000) and new accounts for people under age 25 until 1 October 2019.
The measure was meant to apply from 1 July 2019, but the Government stripped the measures from its Protecting Your Super Bill to get it through the Senate – in a deal with the Greens.
Extra funding for ATO to chase unpaid super
The ATO will receive $42.1 million over four years to help recover unpaid tax and superannuation.
“These activities will focus on larger businesses and high wealth individuals to ensure on-time payment of their tax and superannuation liabilities. The measure will not extend to small businesses.”
Super fund merger tax relief to be made permanent
Currently tax relief for merging super funds is due to expire on 1 July 2020. The Government proposes that this tax relief be made permanent.
“Since December 2008, tax relief has been available for superannuation funds to transfer revenue and capital losses to a new merged fund, and to defer taxation consequences on gains and losses from revenue and capital assets.”
“The tax relief will be made permanent from 1 July 2020, ensuring superannuation fund member balances are not affected by tax when funds merge.”
The Productivity Commission, in its superannuation report, recommended: “The Australian Government should legislate to make permanent the temporary loss relief and asset rollover provisions that provide relief from capital gains tax liabilities to superannuation funds in the event of fund mergers and transfer events.”
Superannuation Consumer Advocate
$100,000 will be put to an “expression of interest process to identify options to support the establishment of a Superannuation Consumer Advocate”.
“The Advocate would provide input on behalf of consumers in policy discussions and provide information to educate and assist consumers navigate the superannuation system.”
Assistant Treasurer Stuart Robert said: ”
The complex and compulsory nature of superannuation means we need an independent consumer body with specialist knowledge.”
“The advocate will be an important voice in providing input on behalf of members in policy discussions, and working to educate and assist members navigate the superannuation system.”
Robert said this was the first step in implementing recommendation 28 of the Productivity Commissions’s report into the efficiency and competitiveness of the super system – to which the Government has yet to fully respond.
The Commission recommended: “The Australian Government should, as a priority, provide adequate ongoing funding to support an independent superannuation members’ advocacy and assistance body.”
Funding for SCT to complete casework
An additional $2.3 million will go to ASIC so the Superannuation Complaints Tribunal (SCT) can resolve the outstanding complaints it had before it ceases operation on 31 December 2021. The funding is over three years, and starts in 2020/21.
“This follows the delayed commencement of the Australian Financial Complaints Authority and will allow ASIC to manage the closure of the SCT.”
“The cost of this measure will be offset by a corresponding increase in the Australian Prudential Regulation Authority Financial Institutions Supervisory Levies.”
Choice for ADF Super members leaving forces
The Government proposes extending eligibility for the Australian Defence Force Superannuation Scheme (ADF Super), so that ADF Super members can choose to remain contributory members when they discharge from the defence forces.
“This will align ADF Super arrangements with superannuation arrangements available in broader industry and other public superannuation schemes.”
Budget welcome but a missed opportunity, says super industry
Several superannuation industry bodies have described the 2019 Budget as a “missed opportunity” when it comes to superannuation.
The Australian Institute of Superannuation Trustees (AIST) said the Budget had good news for older people who could afford to make additional super contributions, but it “will have minimal impact on the retirement outcomes of most Australians”.
“The vast majority of members of profit-to-member superannuation funds will not benefit from these changes. Most ordinary working Australians cannot afford to make extra contributions and can only dream of having the money to pour an extra $300,000 into their super fund in a single year,” said AIST CEO Eva Scheerlinck.
“This budget is a missed opportunity to improve retirement outcomes for low income workers and the many women with broken work patterns who still retire with around half the super of men.”
AIST noted the additional funding for ASIC and APRA resulting from the Financial Services Royal Commission, though was concerned by this funding being raised though industry levies.
“Profit-to-member super funds were thoroughly examined by the Hayne Royal Commission and unlike the banks, received a relatively clean bill of health. Their members should not be forced to pay for ASIC and APRA to investigate misconduct by banks and bank-owned superannuation funds,” Scheerlinck said.
Industry Super Australia says the super changes in the Budget are welcome, but too little is being done on the superannuation gender gap and unpaid super.
“Those who have retired or are on the cusp of doing so will benefit from changes to voluntary super contributions outlined in tonight’s Budget, yet there is not enough help for the millions of younger workers missing out on basic super entitlements,” said Industry Super Australia (ISA).
ISA’s Deputy Chief Executive Matthew Linden said the contribution changes could help those who don’t have enough saved for retirement, but could also be used by those who already have “very healthy” super balances.
“If this measure proceeds there would be some justification to focus benefits to those with inadequate super savings,” he said.
“Sadly, the Budget again misses an opportunity to take action on the millions of Australians missing out on super entitlements – particularly women and younger workers.”
ISA would have liked to have seen the $450 monthly threshold for Super Guarantee being removed, and paying super on parental leave.
“Although the budget includes welcome additional funding to the ATO to recover unpaid super there is no commitment to align super with wage payments which would address the source of the problem,” said Linden.
Though ISA “strongly supports” permanent tax relief for merging super funds.
The SMSF Association has welcomed the ECPI and work test changes.
CEO John Maroney noted streamlining the ECPI rules was an initiative the Association has advocated for as a way to reduce red tape.
“This change allows prior industry practice of using the proportionate method and calculating ECPI through an actuarial certificate to begin again,” Maroney said.
The Association also welcomed the contributions changes.
“It’s the Association’s policy position to support greater flexibility for making contributions to superannuation. Although we suggested that the Government should remove the work test altogether in our Budget submission, this measure is a step in the right direction.”
Maroney said the SMSF sector should welcome being left largely alone in the Budget.
“Many SMSF trustees and their advisers are still experiencing the compliance impacts of the 2016 Budget changes that began on 1 July 2017, so the fact there are no more major changes in the pipeline is extremely positive.”
The Association of Superannuation Funds of Australia (ASFA) said the changes to superannuation were “positive” and the Budget “has brought stability to superannuation and enhanced confidence in our retirement funding system”.
Government to drop SMSF member cap changes from Bill
In news from the 2018/19 Budget, the Government is dropping the proposed increase to the SMSF member cap from four to six.
The measure, announced in last year’s Budget, was only introduced to Parliament in February. It is the only one of the Government’s superannuation-related Bills scheduled for debate this week – which includes only two Senate sitting days.
Labor is opposed to changing the SMSF member cap, and recommended the measure be removed from the Bill – which include other tax changes.
The Government has proposed an amendment to its own Bill, in the House of Representatives, removing the measure.