The 2020-21 Federal Budget to be handed down on 6 October will be one of the most crucial in Australia’s history. The Budget will provide a further update on the economic and fiscal impacts of the coronavirus in Australia and is expected to set out the path to economic recovery.
September 2020
The 2020-21 Federal Budget to be handed down on 6 October will be one of the most crucial in Australia’s history. The Budget will provide a further update on the economic and fiscal impacts of the coronavirus in Australia and is expected to set out the path to economic recovery.
As in most years, superannuation forms a key part of the economy and policy consideration. We expect this Budget to be no different.
However, we are not expecting any specific measures relating to SMSFs in this year’s Federal Budget.
A key reason for this is related to the COVID-19 pandemic. Most measures will need to be big picture reforms that ensure that Australian’s are able to engage in an economic recovery. This contrasts with more detailed and granular improvements in the operation of the SMSF legislation that we have traditionally advocated for.
Another aspect intertwining with superannuation and the Federal Budget, is the completed but not yet released, Retirement Income Review. This, over 600 page review of the entire retirement income system, is expected to provide a set of facts which will help formulate significant policy changes in superannuation and SMSFs. With this report unlikely to be released prior to the Budget, it is hard to predict what information the Government may already be privy to that could form some measures released in October or be delayed for a later time.
The good news however is that the Assistant Minister for Superannuation, Financial Services and Financial Technology, Senator Jane Hume, recently reiterated the Government’s commitment to their election promise that there will be no adverse tax changes to the superannuation system.
So, what might we see in super?
A new default system
A key recommendation from the Productivity Commission in 2019 was to ensure that superannuation members only default once into the superannuation system.
Currently, when individuals change jobs and they don’t nominate a superannuation fund to receive their superannuation contributions from their new employer, they are ‘defaulted’ into the employer’s choice of new superannuation fund. This creates multiple superannuation accounts, particularly for younger individuals and results in additional fees and, depending on the fund chosen, potentially poor investment performance.
Therefore, we expect to a see new default superannuation system in the Budget which ensures that accounts should only be created for members who are new to the workforce or do not already have a superannuation account (and who do not nominate a fund of their own).
First Home Super Saver Scheme expanded to compulsory contributions
Off the back of the COVID-19 early release of superannuation scheme which the Government has heralded as effective because Australians are overwhelmingly making decisions to put themselves in a more economically resilient position, we may see an expansion of the First Home Super Saver Scheme.
Currently, individuals can make voluntary contributions of up $30,000 to their superannuation fund which they can later withdraw to purchase their first home. This helps first home buyers save faster by utilising the concessional tax treatment of superannuation.
A potential measure which broadens this release of super to also include compulsory superannuation contributions up to $30,000, may also be implemented to help more Australians buy their first home.
Open Superannuation data
Another Productivity Commission recommendation is the rollout of something called the consumer data right program for superannuation. Currently, this program is being used in ‘open banking’ which allows consumers to share their banking data easily with other banks and financial services companies. This allows individuals to get better-suited banking products and switch products or banks more easily.
We may see the Government automatically accredit superannuation funds to be eligible to receive (following member consent) information held by banks under the Open Banking Initiative to help individuals compare and switch superannuation accounts more easily.
A delay in the Superannuation Guarantee
Finally, the superannuation guarantee is the hottest political debate in town. The super guarantee — the proportion of wages that must be contributed to retirement savings — is legislated to rise gradually from 9.5 per cent to 12 per cent by 2025, but the COVID-19 pandemic has sharpened the debate on this timeline.
We think the Retirement Income Review will provide an abundance of important facts on this issue, but we may see the Government further delay this increase in the Budget so that businesses are able to better navigate the impacts of Australia’s first recession in three decades.
What has the SMSF Association advocated for?
The SMSF Association’s Federal Budget submission to Government focussed on reducing red-tape.
We support the Federal Government’s stated ambition to grow the Australian economy out of debt in the wake of the COVID-19 induced recession – and cutting the red tape that is stifling the financial advice sector for consumers and advisers should be integral to this goal.
With the Government’s intention to stimulate growth, we believe simplifying the regulatory framework around the financial advice industry can play an important role in this process.
Improving the financial advice framework is just one reform the Federal Government can implement to make financial advice more accessible and affordable for consumers, with our submission outlining seven other areas where red tape can be reduced. They are:
- Providing financial advisers access to superannuation tax portals;
- Streamlining total superannuation balance thresholds;
- Improving superannuation residency rules for SMSFs;
- Repealing the work test;
- Providing a practical approach to non-geared unit trust breaches;
- Introducing an amnesty to convert legacy pensions to modern products; and
- Introducing an effective spousal equalisation measure.
If you wish to read the submission in full, you can do so here.
If you wish to read the submission in full, you can do so here.
The Federal Budget will be handed down on Tuesday 6 October 2020.
The SMSF Association will be providing a timely Federal Budget update to all SMSF Connect Free Community members, keep an eye on your inbox for more.