The start to the new year provides a time to ponder the big issues likely to impact the superannuation and SMSFs in 2016.
The year shapes as a pivotal one for the future direction of superannuation policy within Australia. The finalisation of the tax white paper, along with a federal election will see the beginnings of a new tax landscape for superannuation contributions and likely reintroduction of ceilings for tax concessions available to pensioners (with sizeable wealth) in pension phase. It has been acknowledged that a re-alignment of the tax concessions needs to occur, not only to help fix the budgetary pressures, but also the longer term challenges of an older population.
The notion of ‘self-funded’ for retirement is a phrase that we will see the Government really focus on throughout this year and the process of reform. A report by the Productivity Commission on ‘housing decisions of older Australians’ demonstrates some of the challenges the Government is facing – balancing superannuation concessions for retirement, providing an adequate safety-net via Age Pension support and the ability to extract wealth in the family home to support individual (and couples) needs. As the report highlights, concern exists about the lack of using housing wealth for living and care costs, with many Australians seeing the family home as a means to either self-insure against longevity risk or use as a means to transfer wealth down to future generations.
I believe it would be unlikely to see much change on super policy prior to an election, with the outcomes of the tax whitepaper likely to form the basis for the Coalition Government’s mandate for re-election. The Labor Government has previously set out their intentions with superannuation, targeting a lower threshold to apply the Div 293 tax (‘surcharge’ contributions tax) and limiting tax exemption of pension earnings per individual to $75,000 p.a. As result, it is the timing of a federal election that would of dictate action on super policy in 2016.
Discussion and debate was in full swing throughout 2015, which considered:
- lifetime contribution caps to deal which aims to help with broken work patterns, along with restricting what some believe to be generous existing contribution caps;
- adopting Ken Henry’s recommendation from the tax system review on abolishing contributions tax and replacing it with a marginal tax rate approach adjusted for a flat tax rate offset (see page 36 of the Report to the Treasurer on Australia’s Future Tax System – December 2009). Variations to the rate of this tax offset have been discussed between 15% – 20%, and
- a pensions account balance cap that limits the tax concessions for individuals in paying an income stream. See somewhat as a reintroduction to the previous RBL system, many believe this to be a far simpler approach to managing the tax concessions than based on an earnings threshold (as outlined by Labor)
What about SMSFs in 2016?
Relatively untouched in the Financial Systems Inquiry, I expect the SMSF sector to continue to rise. The ATO statistical summary shows consistent growth, with younger entrants amongst those being attracted to running their own fund. Those in and moving to post-retirement is the ‘big mover’ when looking at the ATO SMSF statistics, with the Regulator also taking a greater interest in the tax concessions being provided to those drawing an income stream from their SMSF.
I’ll be sharing my top 6 strategies for 2016 on Wednesday, 20 January 2016 at 12pm AEDT. Registration is free – join more than 300 people already registered for this event here, thesmsfacademy.com.au/event/top-6-strategies-for-2016/