AIST Policy News - 9 May 2018

AIST Policy News - 9 May 2018

AIST Budget overview

Measures to tackle multiple superannuation accounts, changes to insurance for younger and inactive members and restrictions on superannuation fees were the key superannuation measures announced in the 2018/19 Federal Budget.

Importantly, the Budget did not contain any changes to the legislated increase in the Superannuation Guarantee, beginning with an increase from 9.5 per cent to 10 per cent in 2021. Further, there were no major changes to the taxation of super or the concessional and non-concessional caps for voluntary contributions. :

The Budget confirms that the Government is moving to require trustees to offer Comprehensive Income Products for Retirement with more details to come through industry consultation.

Other Budget measures focused on encouraging retirees to work more and make voluntary contributions.

In total, the measures announced remove an estimated $1.6 billion (Industry Super Australia estimate) from the super system.

Super and pension measures in a nutshell:

  • Auto-consolidation of multiple accounts
  • Abolish exit fees on all super accounts
  • 3% cap on administration and exit fees for accounts less than $6000
  • Proposal to remove default insurance for Under 25s or low balances and inactive
  • Pensions home equity scheme
  • Pension Work Bonus
  • Allowing retirees to make voluntary contributions in the first year of retirement
  • Developing framework for Comprehensive Income Retirement Products

Other key measures and forecasts:

  • Personal income tax cuts were the centerpiece of the Budget. In a first phase of a 7 year plan, 4.4 million Australians with incomes between $48,000 and $90,000 will receive a $530 cash rebate in 2018-19
  • $2 billion funding for aged care
  • $24.5 billion (out of the existing 10 year $75 billion infrastructure commitment) to new transport projects.
  • Estimated $6.1 billion to be raised from tackling the black economy
  • Budget forecast to return to surplus (of $11 billion) in 2020/21
  • Net debt is forecast to peak at 18.6 per cent of GDP in 2017-18, falling to 14.7 per cent of GDP in 2021-22.

Further information on various announcements is available through this Treasury link.

Click here for AIST’s media release on the Budget measure which raises concerns about the lack of any measures to address issues such the gender super gap.


SUPER AND RETIREMENT MEASURES IN MORE DETAIL

Auto-consolidation of multiple accounts 

The Government announced proposals to tackle multiple superannuation accounts. Under the proposals, all super accounts that have not received a contribution for 13 months, with balances below $6,000, will be classified as inactive and transferred to the ATO.

The ATO will be given powers to use data matching to automatically consolidate these accounts with members’ active accounts.

The Government expects the new system will reunite $6 billion of superannuation with to 3 million members’ active accounts in 2019-20.

It is critical that the ATO receives adequate funding to implement this important initiative, that its new systems are effective and that it prioritises the use of its new powers.

The Government has released a consultation package for this proposal. You can find the package here.

Submissions are due on 29 May 2018. AIST will be making a submission.

Fees 

The Government has proposed measures to tackle the impact of superannuation fees on member balances. The proposed measures are:

  • A cap on administration and investment fees on accounts with balances less than $6,000 at 3 per cent
  • Abolishing all superannuation fund exit fees.

The Government has released a consultation package for this proposal. You can find the package here.

Submissions are due on 29 May 2018. AIST will be making a submission.

Insurance in Superannuation 

The Government will consult on proposals to abolish default insurance cover within superannuation for young people under 25, those with balances of less than $6,000 and inactive accounts that have not received a contribution for 13 months.

These proposals would protect the superannuation balances of these members from being eroded by insurance premiums, but leave many younger and low balance members, including blue collar workers in hazardous jobs, without life insurance cover. The proposals may lead to higher insurance premiums.

The Government has released a consultation package for this proposal. You can find the package here.

Submissions are due on 29 May 2018. AIST will be making a submission.

Encouraging retired home owners to use home equity to fund their retirement 

The Pension Loans Scheme is a reverse-mortgage style scheme that enables retirees to release equity in their home in the form of an income stream. Centrelink administers the Scheme. The Scheme is currently only open to retirees who are eligible for a part Age Pension and is not widely used. The Government has proposed to extend the Scheme to all retirees, including full rate Age Pensioners and self-funded retirees.

This will enable single retirees who own their own home to boost their income by up to $11,799 and couples to boost their retirement income by up to $17,800 without impacting their eligibility for the Age Pension or other benefits.

Encouraging retirees to work more  

The Pension Work Bonus allows pensioners to earn up to $250 each fortnight without reducing their Age Pension. It will be expanded to allow pensioners to earn an extra $50 a fortnight ($1,300 a year) without reducing their pension payments.

The Pension Work Bonus will also be expanded to self-employed people who will be able to earn up to $7,800 a year.

The Government expects 88,000 people to take up the option to work more as a result of these changes.

Allowing retirees to make voluntary contributions in the first year of retirement 

Retirees aged between 65 and 74 with a superannuation balance below $300,000 will be allowed to make voluntary super contributions for the first year that they no longer meet the work test requirements.

Comprehensive income products for retirement 

The Government has proposed introducing a retirement income covenant requiring superannuation trustees to formulate a retirement strategy. It will require trustees to offer Comprehensive Income Products for Retirement.

The Government will release a position paper outlining its proposed approach to the covenant shortly.

Providers of retirement income products will also be required to report simplified, standardized metrics in product disclosure to assist consumer decision making.

From 1 July 2019 new Age Pension means testing rules will be introduced for pooled lifetime income streams. The rules will assess a fixed 60 per cent of all pooled lifetime product payments as income, and 60 per cent of the purchase price of the product as assets until 84, or a minimum of 5 years, and then 30 per cent for the rest of the person’s life.

No change to legislated SG Increase 

The Budget did not make any changes to the legislated increase in the SG beginning with an increase from 9.5 per cent to 10 per cent in 2021.

Additional Royal Commission funding 

The Government has committed to provide $10.6 million over two years from 2017-2018 to ASIC and $2.7 million in 2018-2019 to APRA to assist the regulators in their involvement in the Royal Commission.

AFCA 

The Government will provide additional funding of $1.7 million in 2018-2019 towards the establishment of Australian Financial Complaints Authority, which kick starts on 1 November, this year.

High income earners 

High-income earners will be protected from inadvertently breaching the annual super contributions limits; individuals who earn more than $263,157 a year from multiple employers will be allowed to make wages from certain companies exempt from the super guarantee.

Under current rules, individuals earning more than this amount from multiple sources can easily find themselves contributing more than the annual $25,000 limit, resulting in a tax bill.

Funding for financial literacy initiatives 

The Government has provided $10 million for initiatives to improve financial literacy among women, as part of a wider $50 million fund to promote the financial capabilities of Australian consumers.

Monitoring of ‘Notice of Intention to Deduct’ requirements 

From 1 July 2018, the ATO will receive $3.1 million to check that individuals are completing ‘Notice of Intent’ forms when claiming tax deductions on personal super contributions. Some super fund members are not completing the form, which means the super fund does not deduct the contributions tax, but individuals receive a tax deduction in their tax returns. The Government expects to gain $430 million over the forward estimates through greater monitoring.

Self managed super funds 

The maximum number of trustees allowed in a self-managed vehicle will be raised from four to six, and from July next year the government will allow funds with "a history of good record-keeping and compliance" to obtain an audit once every three years instead of annually.

More Superannuation announcements to come 

More announcements concerning superannuation may be included in a Women's Economic Security Statement which Financial Services Minister Kelly ODwyer is delivering in Spring 2018.