Budget super changes open to refinement

Mike Taylor writes that the critics of the Government's Budget super changes should expect minor tactical adjustments rather than major reversals.

How much of the Government's Budget changes to superannuation will be altered as a result of post-election industry consultation? Not as much as the critics would like.

The Government last week reacted to persistent criticism of its Budget changes by signalling that it was prepared to consult with the industry after the Federal Election. But what needs to be understood about the changes to superannuation announced in the 3 May Federal Budget is that they were always going to be the subject of such consultation.

The sheer scale of the changes to superannuation, their impact on the broader tax regime and complex implementation issues for key stakeholders such as the Australian Taxation Office (ATO) and superannuation funds are such that a long process of consultation was always going to be necessary.

This is something that was always understood by key industry groups such as the Financial Services Council (FSC), the Financial Planning Association (FPA) and the Association of Financial Advisers (AFA), but each has chosen to keep their powder dry in what has proven to be an increasingly antagonistic election environment.

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But the magnitude of the consultative process can be measured by a 17-point list developed by KPMG's head of superannuation, Dana Fleming, and her colleague, Ross Stephens.

That list did not call for the repeal or amendment of the proposed Budget changes but, rather, pointed to grey areas, anomalies and inconsistencies and sought sensible clarification.

For instance, the KPMG team pointed to reporting requirements for SMSFs to the ATO and the likelihood that new fields would be required to monitor transfers to pension phase against the new $1.6 million limit and to distinguish between transition to retirement (TTR) pension and ordinary pension.

The technical team also queried the manner in which the use of new deferred annuity-type products would be treated with respect to the $1.6 million cap and whether funds would face tax problems over the manner in which they treat TTRs.

The KPMG analysis even pointed to potential problems around moving from the current low income superannuation contribution to the low income superannuation tax offset, suggesting this might "mean funds do not have the wherewithal to pass on the offset to members until the funds lodge its tax return".

Where the highly controversial $500,000 non-concessional limit is concerned, KPMG noted that it would "act as a significant impediment to persons retiring in Australia who built up significant parts of their retirement entitlements in non-Australian funds whilst working overseas".

It also noted that the other issue with the $500,000 non-concessional cap was that there may also be persons who were in the later parts of their careers and had not yet built up much super (e.g. self-employed or persons with lower incomes or capacity to make contributions in many of the previous years, where the combination of the new $500,000 cap, and $25,000 concessional contributions for their remaining working years would not enable them to build anything like $1.6 million).

It suggested that, perhaps, like the $25,000 catch up contributions, there should be a catch up non-concessional cap for those with balances below a given amount claiming this sort of approach could be similar to the one-off $1 million contribution available in 2007.

In other words, there are many technical and implementation issues which need to be dealt with before the necessary legislative or regulatory changes can be presented to the Parliament and these, in turn, will give a re-elected Turnbull Government an opportunity to make changes at the margin.

However, the critics of the Budget changes are likely to be proved wrong if they believe they can extract a comprehensive back-down. More likely is some judicious grandfathering combined with technical refinement.