News in brief

Tax concessions under fire

Assistant Treasurer and Financial Services Minister Stephen Jones has confirmed the Albanese government will be looking to reassess the superannuation tax concessions and has singled out certain SMSFs as a trigger for the review.

Speaking at the recent AFR Super and Wealth Summit 2022, Jones told delegates: “We have 32 self-managed superannuation funds with more than $100 million in assets. The largest self-managed superannuation fund has over $400 million in assets. Now if the objective of superannuation is to provide a taxpreferred means for estate planning, then you could say it’s done its job pretty well.

“Don’t get me wrong, the government celebrates success, but the concessional taxation of funds like these has a real cost to the budget.”

According to the Minister, Mercer data estimates the tax concessions on a super fund with $10 million of assets could support 3.1 full aged pensions and these figures highlight the need to address the issue.

He pointed out defining and legislating the objective of superannuation will form part of the process and the government will consult widely in an effort to do so.

LRBAs no risk to system

Limited recourse borrowing arrangements (LRBA) do not pose any significant risk to the superannuation sector or the broader financial system, but further policy changes may be necessary to reduce the risks for individuals who use them in inappropriate ways, according to a review by the Council of Financial Regulators (CFR).

The CFR made the assertion in a report, “Leverage and Risk in the Superannuation System”, which also noted there had been no LRBA-related risks in the superannuation system since they were first permitted in 2007.

The report, commissioned by the previous government in 2019 following the release of a similar report in that year, was provided to the Treasurer in late September.

Specifically it was determined borrowing by SMSFs through LRBAs has not posed a material risk to the superannuation system or broader financial system since it was introduced in 2007.

“This is notwithstanding evidence LRBAs are used in inappropriate ways by some individuals and can be a high risk to their retirement savings and, by extension, increase the risk of higher fiscal outlays through the age pension,” the report stated.

The CFR recommended continual monitoring of LRBAs be conducted rather than another review in the future.

Resistance to super balance cap

The SMSF Association has reiterated its opposition to the potential imposition of a superannuation balance cap after Assistant Treasurer and Financial Services Minister Stephen Jones expressed concerns about a number of self-managed funds with asset holdings of over $100 million.

“We do not and have never supported a cap on superannuation balances. The small number of SMSFs with extremely large balances are a legacy issue that the 2017 changes, which placed clear limits on contributions to superannuation funds and the amounts that can be held in the tax-free retirement phase, will remedy over time,” SMSF Association chief executive John Maroney said.

“It’s also our position that if there is a decision to restrict the retention of extremely large balances in superannuation, then [that] needs to be handled carefully to ensure that any rule changes allow adequate time to manage the restructuring that would be involved, especially where large illiquid assets are involved. It also must not adversely affect the vast majority of SMSFs with moderate balances.”

He pointed out any move to implement a limit on superannuation balances would constitute a broken preelection promise by the Labor Party.

Super about retirement

A panel of senior superannuation executives has suggested the proposed legislated objective of superannuation must include the notion of retirement and should be as simple as possible.

Speaking at the recent AFR Super and Wealth Summit 2022 in Sydney, AustralianSuper chief executive Paul Schroder told delegates he was in total support of these two elements.

“The most important thing about the objective is that it’s about retirement. So that’s the single most important thing. And then the next most important thing is to have as few words as possible so we don’t end up in this circular argument about detail,” Schroder said.

Fellow panellist Aware Super chief executive Deanne Stewart concurred with the retirement income theme and wanted it to have an element of inclusion as well.

“I think it needs to have retirement income in it and it needs to have [a reference to] every working Australian and the shorter the better,” Stewart said.

Mercer Pacific region president and Australia chief executive David Bryant favoured the most simplistic definition.

“[The objective or purpose of super should be to provide a] dignified retirement,” Bryant noted.