TSA

Super reform on the horizon

NATASHA PANAGIS is head of superannuation at Tax and Super Australia. Despite being assured by the new federal government we were unlikely to see any major reform to superannuation, here we are again with more changes now flagged. Perhaps it was only a matter of time considering money needs to come from somewhere to repair the massive budget deficit.

For those that missed it, the government has announced it will consider restricting tax concessions on superannuation balances once it has legislated an objective for the super system.

Most people would agree the objective of superannuation is to provide retirement income, but the argument is funds with multi-million-dollar balances surely cannot claim all of that money will be required for retirement income. Rather, the view is such high account balances are well in excess of retirement needs and therefore the tax concessions within superannuation provide certain individuals with a tax-preferred means for estate planning.

It is reported there are at least 11,000 superannuation fund members with balances of over $5 million, 32 SMSFs with more than $100 million in assets and the largest SMSF has over $400 million in assets. Assistant Treasurer Stephen Jones indicated that somewhere “south of $10 million” is probably what the government is looking at. But how far “south of $10 million” is he considering?

Certain industry bodies have proposed amounts as low as $2 million to $5 million across both the accumulation and pension phase and that people with more than this amount should be required to withdraw the amounts so the money sits outside of the superannuation environment.

But could we be looking at a much lower figure? When the $1.6 million transfer balance cap (TBC) was introduced, it was set at approximately twice the level of assets at which a single homeowner currently loses entitlement to the age pension, and almost three times the comfortable standard as determined by the Association of Superannuation Funds of Australia. Assuming the proposal does pass, who’s to say the cap won’t be lowered again, just like how the contribution caps have been tinkered with over the years?

And importantly, how would the new superannuation balance cap work with our existing retirement savings framework? Will the contribution caps, total superannuation balance limits and TBC regime all need to be revisited to make way for this new cap and resulting limit on super tax concessions?

The main reason why the aforementioned mega funds exist, and these funds are extreme exceptions rather than the norm, is due to the superannuation policies that were around in the past, rather than anything to do with current policy settings. If we take a trip down memory lane, there was no tax on contributions and earnings back in the early 1980s, individuals were able to roll over any employment termination payments to superannuation prior to 1 July 2017 and we can’t forget the extremely generous transitional non-concessional contribution (NCC) cap where individuals could contribute up to $1 million of NCCs to their super fund between 10 May 2006 and 30 June 2007. These are just some of the many liberal rules that used to exist back in the day but no longer do.

While it may be difficult to argue that a multimillion-dollar superannuation fund in a concessionally taxed environment is not excessive, the basis for change on the grounds of equity is biased when compared to other areas of the taxation system that are just as inequitable and could also do with a holistic review. For example, the main residence exemption from capital gains tax (CGT) and the 50 per cent CGT discount, only available outside of superannuation, will cost the budget $29 billion and $33.5 billion respectively in 2022/23. Also, accelerated depreciation tax breaks for businesses with a turnover of up to $5 billion cost $9.3 billion over the same period. I’m not suggesting we change the entire tax landscape, but why is superannuation always in the firing line?

If change is afoot, it will be crucial for industry to work with the government to get this right. The superannuation system is already very complex. Let’s hope once the objective of super is legislated, we don’t see the government of the day continue to turn superannuation into a political football where it keeps moving the goalposts based on the short-term policy and fiscal objectives it wishes to achieve at that moment in time at the expense of investor confidence.