Superannuation measures in this year’s federal budget have been welcomed as being not too intrusive, but introducing necessary changes that were considered overdue by the sector.
The changes, announced by Treasurer Josh Frydenberg last night, include an extension of the downsizer contribution scheme, the removal of the work test for people aged 67 to 74, an amnesty to allow people to exit legacy pensions and relaxing residency requirements for SMSFs.
SMSF Association chief executive John Maroney said the measures were welcome after “a few quiet budgets for the SMSF sector” and reflected changes sought by the industry body.
“In our 2021 federal budget submission, we advocated for reforms to the residency rules for SMSFs and for an amnesty period to allow SMSF members stuck in legacy pensions to convert to more conventional-style pension products, and we are pleased both measures are included in this year’s budget,” Maroney said.
“Regarding residency rules, we argued in our submission that the existing two-year safe harbour exemption under the central management and control test is too short in the context of modern work arrangements, where executives and other staff are often expected to commit to an overseas placement for more than two years, and that this period should be increased to five years,” he said, adding the extension was in the budget alongside the removal of the active member test.
Financial Planning Association (FPA) chief executive Dante De Gori also welcomed the non-disruptive nature of the measures and supported the work test, downsizer contributions and legacy pension changes.
“The FPA welcomes the government’s decision to introduce flexibility, but not substantial changes to superannuation. Superannuation should not be constantly tinkered with, a position the FPA has consistently held,” De Gori said.
Financial Services Council (FSC) chief executive Sally Loane said the government’s commitment to addressing legacy products, also an area of FSC advocacy, was pleasing, but the move could create other issues for pension holders.
“The ability to move out of legacy pension products, many of which are outdated and expensive, is a welcome move. However, the tax and social security settings will be the key factor [for] consumers and their financial advisers in determining whether to take up the scheme,” Loane said.
Other changes introduced as part of the budget included abolishing the $450 a month earnings threshold for the payment of the superannuation guarantee (SG), which was noted by the SMSF Association, FPA and FSC as a benefit to low-income earners.
Association of Superannuation Funds of Australia chief executive Dr Martin Fahy said this change and the government’s implicit commitment to increasing the SG rate to 12 per cent were important steps in providing adequate retirement savings, particularly for women and younger Australians.
“Australia’s superannuation system enables Australians to retire with dignity. With the legislated increase of the superannuation guarantee to 12 per cent, and a maturing superannuation system, we expect to see a greater proportion of retirees relying less on the age pension and more on their retirement savings,” Fahy said.
He said the removal of the $450 threshold will be beneficial to low-income and casual employees, many of whom are women, and would give them an entitlement that others already had as a right.
The Actuaries Institute also welcomed the removal of the $450 a month threshold, but was critical of the government for not defining the role of superannuation.
“The government has not leveraged the Retirement Income Review to make more impactful changes to the retirement incomes system, such as measures to help non-homeowners (renters) in retirement, in particular some of the most at risk of poverty in retirement – single female renters,” Actuaries Institute president Jefferson Gibbs said.
“The system also still lacks an overall objective for superannuation and its role in supporting retirement incomes.
“The institute urges the government to provide clarity on the purpose of superannuation to enable more substantive reforms to be sensibly made to improve the system.”