Heffron's Blog is a collection of comments related to the latest superannuation comings and goings.
Superstream for SMSFs – do we need it and do we want it?
A personal view? You bet.
The Government released Superannuation Legislation Amendment (Stronger Super and Other Measures) Bill (No 2) 2012 last week as a draft for comment. It is the first step in the process to implementing the Cooper Review’s Superstream recommendations. These are designed to streamline the way in which information and money is passed around the superannuation system. (Imagine, for example, a world with no cheques just electronic transfers, no paper rollover forms, contribution schedules from employers that were in an identical format regardless of the employer from whom they came or the fund to which they were being paid. This gives you some feel for what Superstream is aiming for.)
At this stage, it remains to be seen how much this will impact on SMSFs. The Cooper recommendation was to largely leave SMSFs untouched but we will obviously need to deal with the changes at some level (certainly on those occasions when SMSFs interact with large funds and employers). However, we won’t know the detail until we see the Regulations and Legislative Instruments that will be used to spell it out. The changes proposed in the current Bill simply set a framework – ie, they define “superannuation data and payment matters”, give the Commissioner (and where relevant APRA) the power to set standards in relation to those matters and then finally provide for penalties where the standards aren’t met.
However, should SMSF trustees and practitioners see this as something that will help or hinder business as usual?
The ATO’s SMSF statistical overview
Last Monday, the Australian Taxation Office (ATO) released a publication called “Self-managed superannuation funds – a statistical overview 2008-09”. It’s a fascinating document (and not just for people who are interested in numbers). It provides a snapshot of what the SMSF sector looked like in 2009, based on the returns lodged with the ATO for 2008/09.
(Why are the stats so old, you ask? Because SMSF returns are routinely lodged so late that these are the most up to date figures! An interesting piece of trivia – only around 70% of SMSFs lodge on time. Around 10% are more than 6 months late. Given that most well behaved SMSFs don’t have to lodge their returns until nearly 12 months after the year end, it’s hard to see how anyone could compile more current statistics.)
There are many interesting numbers in the report. I’ve written an article for the AFR’s DIY Super site (www.afr.com/diysuper) which should be up there in the next few days that talks about the compliance statistics.
But there are other interesting segments of the report.
Mid year economic forecast
There wasn’t much ‘new & exciting’ news in this for SMSF members and trustees:
- The information on the Low Income Superannuation Contribution (a special extra Government contribution a bit like the co-contribution for certain people who are working but earning less than $37,000) essentially replicated the draft legislation we already have
- the removal of any upper age limit for Superannuation Guarantee contributions had already been flagged in a press release last month and is actually already well on its way to becoming law. (This was discussed in a previous post where I highlighted that legislation had been put to the House of Reps to increase the upper age limit from 70 to 75. That legislation was amended in the House to remove the age limit entirely and the new version is now in the Senate.)
What was new (but perhaps not exciting) is that the Government Co-contribution is to be halved (effectively the Government’s matching of the individual’s own contributions won’t be as generous).
Equally dispiriting – indexation on the $25,000 concessional contributions cap is to be deferred for a year. Normally this would have increased to $30,000 in 2013/14 as the rules for this limit are that it is indexed to Average Weekly Ordinary Time Earnings but only in $5,000 jumps. We were finally due for a jump. This cap flows on to all sorts of other limits – for example:
- the limit on non-concessional contributions is 6x the concessional contributions cap (so it will also stay at $150,000); and
- the proposed new limit for those over 50 who have less than $500,000 in super is the concessional contributions cap + a fixed $25,000
Perhaps the only thing to get remotely pleased about is the fact that the Government has decided to extend the temporary reduction in minimum pension payments for yet another year. For the three years up to 2010/11, members drawing account-based and market linked pensions were only required to take 50% of the “normal” minimum pension. This year (2011/12), they are only required to take 75% of this “normal” amount. That was due to stop next year and we were to see a return to 100% levels at 1 July 2012. Instead, the 25% reduction (meaning members are only required to take 75% of the “normal” rate) will continue for one last year (2012/13) and we will return to the normal rules from 1 July 2013 (maybe – who knows – this concession has now dragged on for five years, perhaps we’ll never go back to “normal”).
So nothing terribly exciting or imaginative. But hey – I’d still rather be saving for my retirement in Australia than Europe.
Australians ill equipped to handle investment risk
Counter intuitive Super Guarantee changes
The Government has long said it will increase compulsory super via raising the Superannuation Guarantee rate from 9% to 12% over time and it introduced the relevant legislation to the House of Representatives last Wednesday (2 November 2011). The first increase (from 9% to 9.25%) will happen in 2013/14.
The same legislation will extend the age at which Superannuation Guarantee cuts out from 70 to 75. In fact, in a press release issued on the same day, the Minister announced that the Government would actually even scrap this upper age limit from 1 July 2013. (Does this sound like Ground Hog Day? If so, that might be because you recall a Private Member’s Bill put forward by Bronwyn Bishop earlier this year which proposed exactly the same change.)
Why do people question the payment of lump sums from funds with individual trustees?
This old chestnut popped up in a newspaper article this week, prompting several anxious emails from clients asking whether their fund could pay lump sums. While I actually think this is an esoteric and largely irrelevant issue (as in “of course all funds can pay lump sums unless their trust deed prohibits it”), I wondered if there might be some interest in why that question even arises. In fact, more broadly, why do we have this somewhat funny requirement that super funds must either have a trustee that is a company OR the primary purpose of providing pensions? Surely those two things don’t have anything in common?
Additional ATO powers – how will they change the ballgame?
One of the less publicised recommendations of the Cooper Review was additional powers for the ATO. Essentially the review identified that while the ATO had some heavy hitting weapons in its armoury already (making a fund non complying, disqualifying trustees etc) there were some notable gaps which made it difficult to punish those whose transgressions were not significant enough to warrant these severe penalties, but were nonetheless serious.
The two key recommendations that the Government has adopted on this front are to:
- introduce a new range of “administrative penalties” (read : fines) for specific offences; and
- allow the ATO to direct trustees in terms of remedial action (effectively, demand enforceable undertakings)
I think these will change the ballgame quite considerably.
Dealing with faceless institutions – number 2
In my last post, I promised another vignette from my dealings with institutions – the sorts of things that make us all shake our heads, turn to whoever we’re standing next to and say “THAT’S why I have a self managed fund”.
It was just before Christmas… big problems always seem to happen around that time.
Dealing with faceless institutions – what really annoys me
When asked why they have a self managed fund, many people respond along similar lines – flexibility in choosing investments, ability to minimise costs, control and tax / estate planning opportunities. I think there’s another biggie that people never really appreciate until they’ve experienced the alternative – the ability to minimise dealings with faceless ‘help’ desks that are anything but helpful and in fact contribute to most of the blood pressure problems amongst superannuants of a certain age.
I’ve got two recent examples that illustrate this problem perfectly
When will they get a new record?
An article in the Australian Financial Review on Saturday (“DIY Super : an uncontrolled gravy train”, 3 September) trotted out just some of the many arguments against SMSFs that are frequently mounted by detractors.
I won’t be able to resist returning to this article for future posts but I wanted to start with my favourite criticism of SMSFs – that they get better tax breaks than other superannuation funds. The article highlights that in 2008/09, SMSFs paid $1bn in tax whereas all other funds paid $4.5bn. In other words, SMSFs paid less than 20% of the nation’s superannaution taxes despite accounting for over 30% of total superannuation savings. In particular – or so the article says - they get a unique and fantastic deal that they can convert to pension phase and avoid capital gains tax.
If you’ve read the parts of the Tax Act that deal with superannuation, you’ll see that this is simply not true (although I wish it was).