Scrapping hard-to-understand reasonable benefit limits; changing rules on employer eligible termination payments (ETPs); and making more financial planning services tax deductible have all been suggested by the Financial Planning Association (FPA) as possible incentives to increase the super savings of people under 40.
The suggestions were made in Sydney last week by FPA policy and government relations manager John Anning as he appeared before a House of Representatives Standing Committee investigating the adequacy of retirement savings of Australia’s youth.
According to Anning, reasonable benefit limits (RBLs) are too complicated and discourage people from saving for their retirement.
“If the Government needs a way to limit the amount of taxable deductions applied to super it can do away with the RBLs and just use maximum deductible contributions (MDC), instead of having both forms of deduction limits existing at the same time,” he said.
Anning also suggested that MDCs could be raised for people under the age of 40 to encourage them to contribute more to their super.
As for rules surrounding ETPs, Anning believes preservation rules preventing people from putting their ETPs into super and then accessing them early if they were to lose their jobs, act as a further disincentive to save.
On taxation of financial advice, Anning said its was an “illogical distinction” that trail commissions are tax deductible but the initial advice phase — plan preparation — was not.
“If you pay a fee up-front for an initial financial plan the charges are not tax deductible because the ATO says they’re not considered expenses incurred in the procurement of income.
“We are [also] working on a submission to Government that argues that initial consultations with a financial planner do play a role in the procurement of income, so that super is taxed in the same way that fees for taxation advice are taxed.”
