The Government has released draft legislation for some of the changes to superannuation announced in the 2016 Budget. However the draft legislation does not include some of the more controversial changes, such as the $500,000 lifetime non-concessional contributions cap.
Update: the Government has released the third tranche of draft superannuation legislation, which includes the lower non-concessional contributions cap of $100,000, preventing non-concessional contributions once super balances reach the Transfer Balance Cap and changes to the bring-forward rule.
The draft bills and regulations contain measures to:
- set an objective for superannuation
- repeal the ‘10% rule’
- repeal the ‘work test’
- introduce the Low Income Superannuation Tax Offset (LISTO)
- change the spouse contribution tax offset
“The reforms will make the superannuation system fairer, more flexible and more sustainable. The majority of Australians – 96 per cent of individuals with superannuation – will either be better off or unaffected as a result of these changes. Around a quarter of fund members (including many low income earners) will benefit from the Government’s superannuation package,” said a statement by the Treasurer and the Minister for Revenue.
“The Government has consulted with a range of stakeholders on the objective of superannuation and in the development of legislation to implement the 2016-17 Budget superannuation reforms. This policy was taken to the election. The release of exposure draft legislation and explanatory material on the remaining measures will follow in coming weeks.”
These changes are contained in two Bills and one set of regulations:
- Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016
- Treasury Laws Amendment (Fair and Sustainable Superannuation) Regulation 2016
- Superannuation (Objective) Bill 2016
Measures announced in the 2016 Budget but not included in this tranche of draft legislation are the:
- $500,000 lifetime non-concessional contributions cap
- $1.6 million pension ‘Transfer Balance Cap’
- Reducing concessional contributions cap
- Rollover of unused concessional contributions
- Reduction in Division 293 threshold
- Stopping anti-detriment payments
The Treasurer was asked why the $500,000 lifetime non-concessional contributions cap wasn’t going to be included in this tranche of legislation, answering: “Because it is very complex legislation and we are continuing to work through some of those details.”
“I mean it is a very technical issue, superannuation and when you do these things you make sure you get it absolutely right and so that is still being worked on now. The threshold issue about the nature of the $500,000 cap as well as the other matters as you know I have been up front we have been doing that consultation with colleagues now for some weeks.”
Asked in a press conference when legislation for the $500,000 lifetime cap would be released the Treasurer said: “This is complex legislation and those elements of the package will be released in coming weeks and months as they are finalised.”
Labor’s Shadow Minister for Small Business and Financial Services, Katy Gallagher, said it was “embarrassing” that the Government was releasing draft legislation which didn’t include the $500,000 lifetime non-concessional contribution cap.
“The Prime Minister has repeatedly claimed that these reforms are ‘iron-clad’ and would be taken to the Parliament as they were announced in the budget.”
“If anything less than the full legislative superannuation reform package is released today it is a very public and humiliating admission that he and his Treasurer have completely lost control over these important reforms.”
The consultation period in response to the draft legislation runs from 7th September to the 16th of September.
Changes in draft legislation broadly welcomed by superannuation industry
The superannuation industry has been broadly supportive of the changes contained in the draft legislation. The LISTO in particular has been welcomed, including by AIST and ASFA – though it effectively replaces the LISC, which the Government repealed.
David Whiteley, Chief Executive of Industry Super Australia, said: “This measure is critical to restoring the fairness and integrity of superannuation tax concessions. It starts the process of closing the superannuation gender gap, and making the super tax system more contemporary and in keeping with modern society”,
“It is welcome that the government has prioritised tax breaks for the Australians that need them, and not just the top end of town,” he said.
Industry Super Australia also encourages the Government to “move as quickly as practicable to release the full package, and for all Parliamentarians to reach consensus on a super tax package that better targets tax concessions and improves the fiscal sustainability of the system”.
SMSF Association CEO Andrea Slattery said the Government is to be “commended” for many of the changes in the draft legislation.
“We have been firm supporters of LISTO (Low Income Superannuation Tax Offset), deductible contributions, removing the work test for over 65s, and spouse contribution changes.”
“All these measures will give superannuation greater certainty and flexibility, particularly for women and those who have had broken work patterns or variable incomes during their working lives.”
Though Slattery did say the Association is concerned that the proposed objective for superannuation does not include the notion of adequacy. The draft legislation says:
The primary objective of the superannuation system is to provide income in retirement to substitute or supplement the age pension.
“We support the idea of superannuation being to supplement or substitute the age pension, but believe it should also aim to provide people a secure and dignified retirement through an adequate level of retirement savings,” said Slattery.
“It has been our long-held position that in any definition of the objective of superannuation that adequacy must be included. Although we were broadly supportive of the thrust of the Financial System Inquiry recommendations, we believed that on this issue it should have included adequacy as an integral part of its definition of the objective of superannuation.”
“We will continue to consult with the Government on this issue to have adequacy included in the definition and the supporting principles.”
The Financial Services Council (FSC) is also concerned by the lack of adequacy in the objective for superannuation.
“While we believe that the objective of superannuation could be improved by including a focus on adequacy of retirement income, we support the Government’s efforts in seeking to legislate a purpose for superannuation, supported by subsidiary objectives,” said a statement by the FSC, following the release of the draft legislation.
However the FSC is supportive of the other changes. “The set of measures released today will result in more equitable outcomes for Australians contributing to superannuation, improve flexibility in administration of the system and assist in strengthening retirement outcomes.”