As Malcolm Turnbull prepares to unveil his new look ministry a week after claiming victory in the Federal Election, Treasurer Scott Morrison appears to be back-pedalling on the proposed superannuation changes.
Under the most fire from sections of the Liberal Party is the plan to implement a $500,000 lifetime cap on non-concessional contributions, for which the contribution period has been deemed to commence in 2007. This means that any non-concessional contributions made since 2007 will count towards the lifetime cap of $500,000.
The measure, which is designed to stop the wealthy from using superannuation as a means of estate planning, is thought by several within the Liberal Party to have cost votes at the recent election. In order to ensure that the proposed policy remains, while fending off a revolt from within the party, Mr Morrison is said to be considering exemptions. These exemptions are expected to be along the lines of a woman putting her payout from a divorce and relatives placing money from a deceased estate into super. It is believed that proceeds from the sale of farming assets placed in super may also be exempt.
It is estimated that the exemptions would effectively wipe out half to 90 per cent of the $550 million savings expected from this measure.
However, the measure that will return the greatest Budget savings, reducing the concessional contribution cap from $30,000 to $25,000 will remain.
Although the Treasury has refused to comment on the possible exemptions, Prime Minister Malcolm Turnbull does appear to be softening his previous hard line when discussing the proposed changes. Despite pledging that there would be no changes to his Government’s superannuation plans, Mr Turnbull has indicated that he is listening to the rumblings within his own party. “The reforms are important, but in the implementation and transition, there is work to be done. There always is with tax changes. They will go through the normal cabinet and party room process.
“We are listening very keenly, I am listening very keenly and carefully to concerns that have been raised by my colleagues, and of course by other people in the community as well,” he said yesterday.
One of his most vocal colleagues may be former Defence Minister David Johnston, who believes the Government has paid a high price for breaching trust. Speaking to Sky News, Mr Johnston said, “Trust is something that politicians have very little of and we’ve burnt a lot of it in this campaign. Moving the goalposts and retrospectively adjudicating people’s entitlements is something that I think is repugnant to the way, particularly people in Western Australia, relate to Canberra.”
It’s not only those within his own party that believe the non-concessional cap is effectively a retrospective change to superannuation. Last week YourLifeChoices reported that Ian Silk, Chief Executive of Australian Super had seen first hand the effect the proposed change was having on those saving into superannuation, with a jump in inquiries to the superannuation fund on how the changes would affect their retirement plans. “Because there is that element of retrospectivity it just feeds into the fears some people have about putting money into super,” he said.
Retirement is supposed to be your reward for working hard, a time to take things easier and being able to do what you really want to, after years of putting others’ needs first. The reality, largely thanks to a flawed retirement income system is very different.
There are many issues with the country’s current retirement income system but possibly the biggest is that it favours the wealthy who receive the most benefit from tax concessions on superannuation and have the wiles of very clever accountants at their disposal to ensure every investment loophole is utilised.
This creates a disparity with those who have simply worked and saved hard all their lives, dutifully paying into superannuation, trusting the planners their banks have recommended and perhaps hoping that an Age Pension might just make living in retirement affordable. These are the people that the Government has well and truly shafted with its tinkering of superannuation, changes to the Age Pension asset thresholds and its refusal to lay any effective punishment on the big banks who continue to not act in the best interests of individuals planning their retirement.
I note with interest that it’s the $500,000 non-concessional cap that is the focus of Scott Morrison’s apparent face-saving tweaks. I wonder how many people are ever in a position to put more than $500,000 into superannuation full stop, never mind as non-concessional contributions. Yet the measure that could potentially have the greatest benefit to those approaching retirement, the concessional cap, will be reduced from $30,000 to $25,000. The reduction by $5000 may not seem much but for those who had planned to use salary sacrifice to increase concessional contributions in the years approaching retirement, it’s huge. That extra $5000 over 10 years is $50,000, and with associated earnings and compound interest could amount to a great deal more.
The changes to the asset thresholds that are applied to the Age Pension and the doubling of the associated taper rate from $1.50 to $3, has thrown into disarray the plans of 326,000 retirees who are already receiving the Age Pension. These retirees will see their part Age Pensions reduced or even lost altogether come 1 January 2017 when the changes are implemented. But what about those who had simply based their retirement plans on the previous thresholds and had factored in a part Age Pension to the retirement income? Making up the difference in retirement savings will be nigh on impossible.
And don’t get me started on the lack of bite that ASIC has when it comes to dealing with the big banks and their ever-increasing gang of rogue planners. With the banks seemingly operating a ‘move them on and don’t tell anyone’ policy, ASIC is unable to do anything other than shake its head in disbelief when it has been discovered that financial planning regulations have been breached. A slap on the wrist is about all it’s able to do and the big end of town is largely unaffected.
For all the talk of whether superannuation changes announced in Budget 2016/17 were retrospective or not, we seem to have missed the point. Any change to retirement income policy is retrospective when people have been planning their retirement based on a different set of rules. Sure, they may be able to change their plans or investment strategy, but for many who are staring down the barrel of retirement, there simply isn’t the luxury of time, extra funds or much flexibility.
What about you? Do you think that the changes to superannuation are effectively retrospective? Is it in any way possible to plan for retirement knowing the goal posts could change at any moment? What do you think is the greatest challenge facing retirees or those planning their retirement?