The Federal Government yesterday announced a raft of technical changes to Australia’s retirement income system. The new changes address some minor but important issues that affect retirees.
Federal Assistant Treasurer Stuart Robert said the changes will reduce some fees for fund members.
“The Government is committed to the smooth, ongoing implementation of the superannuation taxation package, to ensure that it remains fair and effective,” stated Mr Robert.
“While these are relatively minor changes, the Government is unwavering in its commitment to the integrity of Australia’s superannuation system.”
Market-linked pensions are typically valued under the pension transfer cap when they are rolled over or commuted, which results in a nil debit. The changes will ensure that your balance cap position is accurately reflected, reducing the risk of an individual breaching their cap when rolling over or commuting their market-linked pension.
The Government is also changing the law on how capped benefit of market-linked pensions under the transfer balance cap are treated when rolled over as a result of a successor fund transfer. This means if your fund is rolled over as a result of a merger or acquisition, you’ll no longer have to worry about inadvertently breaching your balance cap.
New changes will also ensure that death benefits that include life insurance are not taxed when rolled over to a new super fund. Death benefit lump sums will remain tax-free for dependents, even when rolled over within the super system.
The definition of the life-expectancy period for innovative income streams will change to properly account for leap years. This will align life-expectancy estimations with annuity anniversary dates to ensure you are not being short-changed in a leap year.
Transfer balance cap credits and debits for income streams paid off in instalments will now receive appropriate treatment regardless of how they are paid.
The valuation of defined benefit pensions under the transfer balance cap will also be amended to reflect when pensions are permanently reduced following an initial higher payment, to ensure that you are not disadvantaged when reductions occur.
The Government is also creating incentives for trustees to better consider retirement income longevity of individuals through its ‘retirement income covenant’. This will ensure that superannuation funds balance the needs and preferences of members beyond the accumulation phase and into the retirement phase.
To help create improved retirement income strategies, the Government will increase the threshold superannuation balance for offering a Comprehensive Income Product for Retirement from $50,000 to $100,000 and delay the requirement for funds to offer these products to 1 July 2022.
“This Government is working with industry to support a higher standard of living for retirees,” wrote Mr Robert.
“The retirement income covenant is a mechanism and we are committed to ensuring we get the settings right.”
Will these changes affect you? What do you think of the Government’s retirement income covenant?