Superannuation: what changes are on the horizon?

The Federal Government is currently considering changes that could significantly affect how superannuation and retirement transition is treated. These changes could be in place within a matter of months, and are further discussed in this article.

We have seen the discussion around superannuation tax reform increase significantly over the last month, with the Government disbanding the release of the tax white paper, while also flagging to all and sundry that they are “getting now very, very close to the landing point on some decisions on superannuation” which could have implications for those over 55-years-old.

Federal Treasurer Scott Morrison spoke recently at the SMSF Annual Conference in Adelaide, and it was evident that the Government see superannuation as a cornerstone of people reaching financial independence. However from their point of view, the system needs to change to make it sustainable over the long term.

The Turnbull Government have indicated they want a superannuation system; that is one that works for all Australians and is fit for the purpose of providing long lasting benefits to the nation as a whole. As a result they have flagged some changes around greater choice, stronger governance, better information and better support for the $2 trillion currently in superannuation assets.

This means that you have a small window of opportunity to address the proposed changes before Budget night on the 3rd of May 2016.

As a result of these issues being flagged, there are three key areas you need to consider reviewing now.

1. Consider a Transition to Retirement Income Stream (TRIS)

Risk of change:  High

There has been a growing popularity in the use of TRIS as a genuine wealth accumulation strategy. Indeed the ATO’s figures outline that 20% of members receiving pensions from SMSFs are now TRIS payments.

There is genuine concern that this strategy has grown into a tax ‘loophole’ with many people taking advantage of the strategy, arguably beyond what its original intention was. As such the Government may do away with the strategy completely or at the very least, water it down significantly.

2. Re-contribution strategies and reducing taxable components

Risk of change: High

One of the most beneficial strategies in relation to superannuation is the ability to move Superannuation money from taxable to tax-free components, by undertaking a re-contribution strategy. This generally aids in getting money with little or no tax to non-dependents upon death.

The Coalition is on the record as saying that “It is important that we remember why superannuation exists. It’s there to assist those with the means to do so to achieve a better retirement income and, at the same time, reduce pressure on the age pension. It’s not, as I’ve said before, an estate-planning vehicle”.

The Government had been considering this strategy within the now defunct tax white paper by re-introducing lifetime limits on super savings as a means of curtailing the tax concessions afforded to higher income earners.

We feel the days for this strategy are potentially numbered.

3. Account based pensions

Risk of change: High

With a ‘ceiling’ likely to be introduced on concessional tax treatment of account balances in super, there is a risk that account based pensions set up post Budget may be assessed against any new lifetime limit that may be revealed on the night.

This could impact any potential Centrelink or other related aspects of account based pensions.

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