February 2019
As leaders of the SMSF sector, we believe we are able to offer insights on some key issues from the perspective of an industry that has grown to represent approximately $755 billion in assets and over 1.1 million SMSF members, becoming an integral part of Australia’s superannuation system and economy.
This year our submission focuses primarily on improving the simplicity of the superannuation system and better defining its purpose for the benefit of all Australians.
We submit to the Government that it is now an opportune time to look to define the objective and role of superannuation. Given there is a dynamic policy landscape driven by the Productivity Commission’s review of superannuation and the Financial Services Royal Commission, ensuring that superannuation has a clear objective will help drive meaningful and effective, holistic policy change.
The SMSF Association also continues to believe that the current contribution caps are inadequate, particularly for Australians approaching retirement age. That is why we have proposed an increase in the cap to $35,000 for older Australians. Restrictive caps do not incentivise individuals to save for their retirement during the years in which making larger contributions to superannuation is financially possible.
We also propose that a spousal rollover measure be introduced for superannuation fund members. This measure will provide an effective and efficient way to significantly improve the superannuation retirement gap between genders and improve equalisation between couples, particularly for women. It also potentially makes the superannuation system simpler as less members will need to comply with exceeding the transfer balance cap.
The need to ensure SMSF advisors have undertaken specific SMSF advice education is now supported by both the Australian Securities and Investment Commission and the Productivity Commission. We believe raising the standards of SMSF advice through specific education requirements is essential for the provision of quality SMSF advice to trustees.
Moreover, our submission highlights significant complexity issues impeding the superannuation system. The restrictions facing SMSF members who reside outside of Australia and a host of technical amendments, including an amnesty for legacy pensions, resulting from the introduction of the new super reforms are proposed fixes to smooth implementation, and provide further choice, flexibility and simplicity in the superannuation system.
Summary
OBJECTIVE OF SUPER
The superannuation and financial services industry have been immersed in another year of regulatory change and heavy scrutiny. With the potential for enormous change in the superannuation landscape, the SMSF Association believes it is now an opportune time to look to define the objective and role of superannuation, including what it is supposed to deliver and how all parts of the superannuation system fit together.
The lack of a legislated objective of superannuation is in part responsible for the lack of a holistic policy-making approach to the retirement system and some of the systemic issues uncovered by various Commissions. A move to restart the conversation and make effective changes to improve the system only when necessary is essential for a successful retirement system.
Accordingly, we encourage the Government to revisit the process of legislating the objective of superannuation in 2019.
INCREASE CONTRIBUTION CAPS FOR OLDER AUSTRALIANS
The SMSF Association believes that the current contribution caps are inadequate, particularly for Australians approaching retirement age. The current concessional contribution cap of $25,000 per year for older individuals has negatively affected their ability to save an adequate amount of superannuation to be self-sufficient in retirement.
We believe Government policy needs to incentivise and encourage Australians to take ownership of their retirement and contribute to their superannuation, particularly when they have greater financial capacity to do so. For those individuals over 50, this is not overwhelmingly the case.
We recommend that individuals over the age of 50 be able to access a higher concessional contribution cap. We suggest that the cap for individuals over 50 should be set at $35,000. This provides an extra $10,000 per year which can be used by those who are planning for retirement and result in a significant positive impact on their lives.
CREATE A SPOUSAL ROLLOVER
The gender retirement gap is an ongoing problem for the superannuation system. Additionally, the introduction of the $1.6 million transfer balance cap and clarification of the ‘cashing’ of death benefits has changed the landscape of the superannuation industry, specifically relating to the importance of individual superannuation balances of a couple.
Therefore, fund member balance equalisation strategies are more important than ever. Current strategies in this regard have been to employ a re-contribution strategy, use spouse contribution tax offsets, or spouse contribution splitting. However, these strategies are limited in effectiveness due to contribution threshold and cap restrictions, withdrawal restrictions, and lack of flexibility and impact of spousal contribution measures.
The SMSF Association proposes that a spousal rollover measure be introduced for superannuation fund members. In essence, the measure would allow an individual with a higher superannuation balance to rollover a portion of their superannuation balance to their spouse in order to help even balances. This measure would provide an effective and efficient way to significantly improve the superannuation retirement gap between genders and improve equalisation between couples, particularly for women.
SMSF EDUCATION REQURIEMENT FOR SMSF ADVISERS
The SMSF Association acknowledges questions regarding the quality of advice provided to members of SMSFs. The quality of financial advice provided to SMSF members is crucial to the integrity and performance of the sector. SMSFs are a specialised complex retirement savings vehicle and are distinctly different to large superannuation funds.
Raising the standards of SMSF advice through specific education requirements has long been a policy advocated for by the SMSF Association and a key focus of our mission to lead the professionalism, integrity and sustainability of the SMSF sector. The SMSF Association believes that advisers who provide advice to individuals about SMSFs should have specific SMSF education and qualifications that underpin their advice.
This need to ensure SMSF advice providers are appropriately educated is now supported by both the Australian Securities and Investment Commission (ASIC) and the Productivity Commission and we encourage the Government to implement this requirement.
SIMPLIFYING THE SUPERANNUATION SYSTEM
Simplifying the superannuation system should be an ongoing focus for Government in order to maximise the efficiency of superannuation so that it can continue to deliver the best retirement income outcomes for fund members.
The SMSF Association suggests the following key measures that the Government could take to remove red-tape and reduce the complexity of superannuation. These measures are:
- An amnesty to allow SMSF trustees to convert their term allocated and legacy pensions to account based pensions.
- Repealing the work test to harmonise contribution rules for older taxpayers with those under the age of 65.
- Addressing inefficiencies in the current residency rules for Australian superannuation funds unfairly affecting SMSFs.
- Ensuring that where a transition to retirement income stream (TRIS) holder satisfies a nil cashing restriction condition of release their TRIS is converted to an account based pension (ABP).
- Removing the requirement for a trustee to obtain an actuarial certificate when a superannuation fund is 100% in retirement phase for the entire year.
- Allowing trustees the ability to ‘choose’ to have segregated exempt current pension income assets.
- Streamlining the total superannuation balance thresholds
- Streamlining the deductible contributions notice.
- Simplifying child pensions and the transfer balance cap.