In the lead up to this year’s federal election, superannuation was one of the most hot button political issues. Speculation about proposed changes and announcements of actual changes dominated news headlines for weeks on end early this year, writes Pauline Vamos.
This speculation had a negative impact on fund member confidence, as more and more people wondered how far and how often the goal posts were going to be moved on their hard earned retirement savings. Importantly, we saw the general community express their concern alongside the industries.
Both major political parties have now promised a pause on any detrimental changes to the superannuation system for at least the next Parliamentary term. These announcements delivered much-needed stability, injecting a degree of confidence for people planning for how they would save for their retirement.
With the federal election now decided and the newly elected Abbott government taking the reins of power, many self-funded retirees would be wondering what impact this may have on their financial goals and lifestyle in retirement.
A new Treasury team has just been announced with Joe Hockey at the helm as Treasurer, supported by Assistant Treasurer Arthur Sinodinos and Steven Ciobo as the portfolio’s Parliamentary Secretary. We anticipate that this team with a strong background in policy and experience in economics and financial services will focus on sound long-term policy in relation to the super system.
As mentioned, a key component of the Abbott government’s plans is a promise to not make any unexpected detrimental changes to superannuation in the next Parliamentary term. However this promise does not include measures announced in election commitments, so there are some things that are likely to be abolished or introduced in the 2014/15 Budget in May next year.
For those who are still working, there are two likely changes which may have an impact depending on your particular circumstances. The first is the removal of the Low Income Superannuation Contribution (LISC). This is an up to $500 tax-free contribution from the Government linked to employer contributions and which is paid directly into the superannuation accounts of people earning $37,500 or less during the financial year. The second is the Abbott government’s plans to delay the increase in the Superannuation Guarantee by two years, pausing it at 9.25 per cent.
While these changes will not impact retirees, they will have an impact on the retirement outcomes of younger workers. While major detrimental changes are off the table, the government hasn’t ruled out making positive adjustments to the superannuation system in the coming years.
One area up for review is the caps placed on annual contributions to superannuation. Currently the concessional contribution cap is set at $25,000 per annum for those aged up to 60, but for those 60 and over it is $35,000 per year. Next year the higher contribution cap will also apply to those 50 and over.
Reviewing contribution caps is important as we know most people are only able to top up their superannuation during the 10-15 years before retirement age, once the mortgage has been paid off and the kids have left home. Therefore further raising the annual limits on concessional and non concessional contributions to super, particularly during the lead up to retirement, would help boost savings significantly. However, further increases to the caps are likely to be dependent on the federal budget getting back into shape, which depending on how the economy travels may be a few years off.
Removing the penalties associated with inadvertent breaches of concessional contribution caps is another area the government has promised to address. As more and more Australians enter retirement, more and more superannuation accounts will move from the accumulation phase into the pension phase. This will drive demand for new and innovative income stream products, and in order to facilitate their development the Coalition Government has committed to removing the regulatory barriers which currently restrict product innovation.
While we all want to live a very long and happy life, sometimes we live longer than we have planned for financially. Removing the impediments to developing products which address the financial consequences of longevity is an important step to ensuring retirees have access to a suite of options to help them live the lifestyle they want in retirement for all of their post-work years.
Also on the review list are the minimum drawdown amounts for account-based pensions. While markets have bounced back since the GFC, we are still in turbulent economic times and the government is committed to ensuring retirees drawing a pension aren’t forced to crystallise past losses by depleting their super balance unnecessarily.
The Coalition Government’s paid parental leave scheme has come under fire from some groups who claim retirees will be substantially affected. The premise of this claim is that because part of the scheme is funded by a levy on large companies, this will flow through to reduced franking credits. While it’s likely there will be some impact, the figures that have been bandied around the media have been somewhat overstated. Reinstating indexation on the Commonwealth Seniors Health Card will also offset any impact of this for self-funded retirees on lower incomes.
So with the political environment for super somewhat settled and the new year fast approaching, now is a great time to take a stocktake of your finances and plan for the years ahead. Think about the lifestyle you want to live in all of your post-work years and put the strategies in place which will help you achieve this.
| Ms Pauline Vamos CEO ASFAThe chief executive of the Association of Superannuation Funds of Australia (ASFA), Pauline Vamos is a qualified lawyer and has over 20 years’ experience in the financial services industry. One of the most authoritative speakers on the industry, Pauline has been a regulator, corporate counsel, head of compliance, a strategic risk consultant as well as a trustee director. She is constantly sought for comment by media and as a speaker for business. Previously, Pauline was director, financial services regulation – licensing and business operations at the Australian Securities and Investments Commission. In that role, she managed the successful implementation of the Financial Services Reform Act. This position cemented her reputation as a leading industry figure and she was voted “Most Influential in the Financial Services Industry” in Money Management as well as “Most Influential in the Superannuation Industry” in Super Review. |
| Association of superannuation funds of Australia (ASFA)ASFA is the peak policy, research and advocacy body for Australia’s superannuation industry. It is a not-for-profit, sector-neutral, and non-party political national organisation whose aim is to advance effective retirement outcomes for members of funds through research, advocacy and the development of policy and industry best practice. |
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