Opinion piece written by John Maroney, CEO, SMSF Association
First published in Financial Review on 29 December 2021. Licensed by Copyright Agency.
An election year means super reforms could be scrapped, with more changes on the cards if there is a change in government.
Election years are always fraught with potential superannuation changes, but in 2022 this looks set to be magnified by important super changes that were stalled in Parliament. There is still a possibility Parliament might pass the relevant bills early next year, but with few parliamentary sitting days before the election likely to be called, no one is holding their breath.
The sector was eagerly awaiting the passing of legislation – titled the Treasury Laws Amendment (Enhancing superannuation outcomes for Australians and helping Australian businesses invest) Bill 2021 – which, among other changes, provides greater flexibility for older Australians to contribute to superannuation.
Announced in the 2021 federal budget, these changes were set to start from July 1, 2022. They include removing the work test for non-concessional super contributions for those aged 67 to 74 (meaning they will no longer have to meet the work test when making non-concessional contributions) and, subject to meeting the eligibility requirements, extending the bring-forward non-concessional contribution rules for this same age group.
The government also wants to lower the age for downsizer contributions from 65 to 60 from July 1, 2022. For SMSF members nearing retirement, it will allow them to make a one-off, post-tax contribution of up to $300,000 per person (or $600,000 per couple) on the sale of a family home they have occupied continuously for a decade.
These reforms were not exclusive to the SMSF sector. But undoubtedly that is where they will have the biggest impact.
But for now, it’s all up in the air – and not only for these big reforms. There are some lesser known SMSF changes also announced in the 2021 budget that have not even been introduced into Parliament.
Included are the changes to the SMSF residency rules and a two-year amnesty for legacy pensions. The former will allow SMSF members to continue to contribute to their SMSF while temporarily overseas. Under the current rules, contributions are prohibited unless a complex active member test is satisfied.
The changes to legacy pensions are designed to simplify the retirement system by allowing super fund members in older complex pension products to move to more flexible, contemporary income streams.
No guarantees on timing
What compounds the uncertainty for SMSFs is that even if the legislation is introduced into Parliament before the election is called, it will lapse if it is not passed before the poll is called. It will then need to be re-introduced into the new Parliament or possibly scrapped if there is a change in government.
Even with a re-elected Coalition government there are no guarantees where these reforms will be in the legislative queue.
If Labor wins, changes in superannuation policy are almost inevitable. A tightening of the contribution caps and a lowering of the Division 293 income threshold for taxing super contributions might be on the cards if Labor’s previous super policy is anything to go by. The abolition of new limited recourse borrowing arrangements (LRBAs), now totalling $59 billion at June 30, 2021, is another possibility.
Irrespective of which party wins the election, there will be a new requirement for company directors, including all existing directors of an SMSF corporate trustee, to obtain a director ID by November 30, 2022, and new compulsory electronic data transmission rules to contend with for SMSFs rolling over funds to and from other funds.
That’s all on the regulatory front. It’s anyone’s guess what will happen with investment markets in 2022, with each new COVID-19 variant having the potential to unnerve markets. Although equity markets, in particular, recovered strongly in 2020 after the initial crash, past performance is never any guarantee of what will happen tomorrow. Volatility looks set to be the name of the game in 2022.
With so much uncertainty on the horizon, it has never been more important to seek advice from an SMSF specialist adviser. Whether you are contemplating setting up an SMSF, or you already have a DIY fund, an SMSF specialist adviser who is licensed to provide professional advice can provide valuable and timely information about the changes and their potential impact on your retirement planning strategies.
Amid all this uncertainty, one thing looks certain: the SMSF sector will continue growing strongly, with the number of funds expected to surge past 600,000 for the first time and the number of SMSF investors expected to surpass 1.13 million.
SMSFs are not an appropriate or preferred retirement savings vehicle for everyone, but it seems the more unpredictable super becomes, the greater the appeal for individuals to manage their own retirement savings and retirement income strategies.