Editorial - Superannuation e-news July 2011

The government's response to Cooper's recommendations, while not a total endorsement, comes pretty close to being one and given the finely balanced Lower House together with the new Senators taking their seats from 1 July, the decisions of government will continue to operate on a knife edge as the government also keeps a wary eye on the Opposition to avoid any miss-step that might lay bare an opportunity for its replacement. What then should we expect from the incumbent government in respect of superannuation reform with this Damocles' Sword hanging over it?

First and foremost it must govern. It would be a shame to drop the ball at this point. There are significant lead times for the implementation of superannuation programs and the Stronger Super reforms have been on the table for some time with key issues debated and generally accepted. Recent suggestions by the Opposition to oppose moves to raise the SG, despite the cautious trajectory chosen, might be a political tactic but it does little to assist an across the board increase in superannuation savings that most observers concede needs to be implemented. Thus while Stronger Super tackles this by raising SG, it also amongst other things, improves equity in relation to negating the contributions tax for low income savers and raises the age for SG eligibility to 75. These are clearly some of the features we support, but Stronger Super does not include everything on our wish list.

We would prefer to see greater opportunities for additional concessional contributions. However with the government lukewarm to any suggestions for increasing the concessional contributions cap we could suggest a compromise. This would incorporate a ‘bring-forward' arrangement, similar in principle to that which currently applies for non concessional caps which would go some way to creating a better and more flexible contributions regime.
Importantly, we would clearly also like to see an overhaul of the excess contributions tax regime. In principle a penalty could be imposed for exceeding the cap, while the excess contributions would be returned in much the same way as has been proposed in the recent Federal Budget for the first $10,000 of excess contributions that would be taxed at the marginal tax rate on return. The current excess contributions tax regime has resulted in significant excess contributions tax revenue being collected. This is obviously not part of its original objective, so while the excess contributions tax regime is a punitive one and may reduce the incidence of excess contributions, that action also reduces the private means available to fund retirement incomes. These shortcomings need to be addressed before the package receives our unanimous support. Nevertheless at present we believe it has a good level of worthwhile reforms included and Minister Shorten will need to continue highlighting the proposed reforms to win greater consensus and for the successful navigation of the proposal through parliament.

Members are reminded that the $50,000 transitional concessional cap for age 50 and over will lapse at the end of the current financial year. The proposed introduction of a $500,000 superannuation asset test would then apply. At this early stage members should plan and where appropriate take the opportunity to contribute at the higher level, particularly if they will be adversely affected by the proposed future arrangement. But as always, special care is necessary for contributions planning to avoid breaching the cap.

Our editorial discussion in the June 2011 Superannuation Quarterly of the proposed 25% minimum pension draw down relief referred to 2012-13 instead of 2011-12. We regret not picking this up prior to publication; however the accompanying article detailed clearly that this is proposed for 2011-12. - Ed.