Everybody’s appetite for risk differs. When it comes to superannuation, managing risk is typically isolated to death and disability. However, with the continued growth of superannuation, we have seen in recent years an increasing propensity for politicians to make change, ranging from contribution caps through to taxation on contributions and fund earnings. This continued uncertainty has played a role in people question the benefits of saving through super.
So, how do you manage against the growing problem of legislative risk? That is, the risk how a change of Government or change of policy will impact your ability to build adequately for retirement?
This question has recently been highlighted with the announcements made by the Labor Government, including:
- An increase to the concessional contribution cap to $35,000 for individuals 60 and over from 1 July 2013 (and 50 and over from 1 July 2014);
- A cap of tax exemption for earnings on assets supporting income streams at $100,000 (per individual), with a 15% tax rate to apply thereafter;
- Reforms to deal with excess concessional contributions (refunding to include within individuals tax return to be taxed at marginal tax rates);
- Extend the normal deeming rules to superannuation account-based income streams;
These announcements follow reforms made in last year’s Federal Budget that introduced:
- A Low-Income Superannuation Contribution (LISC) for individuals earning less than $37,000 p.a; and
- An additional 15% contributions tax for high income earners (income greater than $300,000 p.a.).
How can I ‘proof’ my SMSF from legislative risk?
Whilst nothing is entirely certain when it comes to legislative change, there are a range of things that trustees should be considering when undertaking strategies within their SMSF. Account balance equalisation, member components, and tax management are all aspects to not only manage outcomes today but also into the future.
Strategies that trustees should be considering include:
- Contribution splitting
- Re-contributions (see article, How a recontribution strategy can save you and your family thousands of dollars)
- Spouse contributions
- Allocation of non-concessional contributions (who to allocate to and the timing of allocations); and
- Allocation of benefit payments (which member account to deduct above minimum pension payments from?)
As the Government look to measure future tax concessions against issues of adequacy and sustainability, the reality is that superannuation will remain subject to change as it grows from $1.6 trillion today to more than $5 trillion by 2030. The incentive to provide for your own retirement will always remain, however with an ever-changing political landscape, individuals will need to adapt to change as they build their retirement savings.
In my view, SMSFs are well positioned to best handle the changing nature of retirement policy.
What other strategies do you think would assist in mitigating legislative risk?