No super overhaul, this time

By

10/05/2018

Australia’s superannuation professionals will have mostly breathed a massive sigh of relief in reaction to the Federal Budget, because it has pretty much left their industry alone.

Yes, there have been some tweaks around the edges, and even a few good ideas, but the usual tendency on the part of our governments to tinker endlessly with super seems to have been dialled down, at least for the time being.

That’s probably because, as the pundits are saying, this budget is just a primer for the forthcoming election. So the core element consists of tax breaks for middle income earners, designed to help the party in power back into the hearts and household budgets of the bulk of Australians.

There’s even a suggestion that our leaders have taken a helicopter view of the importance of retirement, rather than the more usual dive for the cookie jar of Australian superannuation savings that’s now sitting a bit north of $2.5 trillion.

Indeed, there are some minor relaxations for self-managed superannuation funds. They include lifting the maximum of trustees per fund from four to six, which may cause awesome arguments but will also allow funds to hold slightly bulkier assets in the retirement phase in the wake of the imposition of the $1.6 million per person transfer balance cap.

Well-run SMSFs with clean audit reports will be allowed to submit to an audit once every three years, rather than annually. That will cut trustees’ administrative costs, even if it’s not so exciting for auditors.

Also, people earning more than $263,157 a year with more than one employer can opt out of receiving superannuation guarantee payments from certain employers, which will help them avoid hitting the relevant concessionary contribution limit. That said, they will have to make sure they are not disadvantaging themselves with their employer by doing so.

Most of the innovations in the budget for older voters are aimed at helping retirees on the age pension, rather than self-funded retirees, but there are some encouraging developments benefiting both.

The moves align with what retirement planners already know, which is that there are many ways to avoid penury in old age, the best ones being to work for longer and contribute more to super.

There is a provision in the budget allowing people between 64 and 74 with less than $300,000 in their super to make more voluntary and non-concessional contributions to their account without meeting the 40 hours in 30 days “work test” in the first year. It’s the sort of sensible measure that leaves you wondering why it wasn’t carved in stone years ago. Also, age pensioners will be allowed to earn up to an extra $50 a week without losing their benefit. How hard was that?

One of the best ways to boost the retirement income stream of oldies is the Pension Loans Scheme, a form of reverse mortgage for older people who are stronger on assets, such as the family home, than they are on revenue stream.

A basic version of the scheme has been in existence since about 1984 but the take-up has been miserable, since it has been open only to people who qualified for a part pension and it paid homeowners only up to the maximum of the age pension.

It was like applying for a bank loan in the late 1970s. If you qualified, you probably didn’t need it.

It meant, for instance, if your part pension was $5000 a year short of the full pension, that was all you were going to get from the scheme. You won’t be surprised to hear it attracted only 13 applications in its first two months of existence, and although it was subsequently tweaked slightly, even by 2010, there were still only 710 loans from that scheme outstanding.

The new scheme is open to all retirees, including people who don’t qualify for a pension of any sort, and that’s thrown the net far, far wider. There are 1.8 million people picking up an age pension in Australia who own their own homes, for a start, of whom 700,000 get a part pension.

Given that most oldies worry about that imbalance between the high value of their family home and the uninspiring returns some of their savings have been paying them lately, it’s going to get a much wider take-up.

Certainly, the miracle of compound interest works in reverse when you are a householder running a reverse mortgage, but the 5.25 per cent a year interest rate on offer is a bit less ferocious than the commercial rates also available, which are above 6 per cent.

The measure is expected to cost the budget $11 million over the next four years, which is little more than a rounding error in the bigger picture.

The revenue cap of 150 per cent of the age pension rate means single retirees can get an extra $11,799 a year, and couples an extra $17,787 from the scheme, although it doesn’t pay out lump sums.

The scheme would appear to have been designed to be almost revenue neutral for the government, since we don’t have death duties, which would be reduced by such a measure. Plus, as ever with home-related financial transactions in Australia, the downside risk to the lender (the government) would be negligible.

It also clicks in nicely with the government’s desire to keep oldies in their own homes for as long as possible. Those 14,000 extra home care packages (from 2021-22) are part of the same strategy.

That won’t be much consolation for young people hoping to buy those oldies’ houses, but the government has a far bigger headache – government-funded institutional aged care is a black hole on the expenditure side of the ledger and it’s only going to grow.

Treasury reminds us that back in 1974-75, there were 80,000 Australians over the age of 85, or about 1 per cent of the population, and that by 2054-55 those figures will be about 2 million people and 4.9 per cent of the population.

Overall, there’s a chance that much of the hard work of fine tuning (or tinkering, depending on your view) with super has been done. If we are ready to believe that, planners could do worse than convincing their clients to invest tax savings with them.

Budget wrap: at a glance

  • Lifting of the maximum of trustees per SMSF will allow funds to hold slightly bulkier assets in the retirement phase in the wake of the transfer balance cap
  • Streamlined auditing requirements for SMSFs with clean audit reports
  • People between 64 and 74 with less than $300,000 in their super now able to make more voluntary and non-concessional contributions to their super without meeting the 40 hours in 30 days “work test” in the first year
  • A new pension Loans Scheme open to all retirees, including people who don’t qualify for a pension of any sort

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