Government’s $3m super cap ‘top of mind’ for advisers
BT has revealed the key topics that will remain on financial advisers’ minds for their clients in 2024.
The research was based on over 8,000 questions advisers asked of the BT Technical Services during 2023.
It found that the imminent tax increase for clients with more than $3 million in their superannuation balance was one of the issues.
The government legislated to reduce super tax concessions into Parliament on 30 November 2023. From 1 July 2025, this will see affected clients pay an additional 15 per cent in tax on earnings above the $3 million mark.
“Advisers have plenty of lead time to update impacted clients’ super strategies,” said Bryan Ashenden, BT head of financial literacy and advocacy.
The super tax has seen pushback from associations who fear more people than expected will find themselves in that category and will unfairly hit young people in the future.
Chartered Accountants Australia and New Zealand (CA ANZ) calculates, for example, that a 25-year-old young professional today earning $95,000 per year, about the average full-time wage, will be $90,000 worse off in retirement under the proposed changes.
The Association of Superannuation Funds of Australia (ASFA) stated that around 80,000 people will be affected from 2025, the time of its implementation.
“These changes will unfairly impact on people who are in or approaching retirement who followed the rules, and are also a tax trap for young players. We are urging parliamentarians to either pause, reject or amend this legislation – because it would be unjust to pass the bill in its current version,” said CA ANZ superannuation and financial services leader, Tony Negline.
Implementing the Quality of Advice Review recommendations will also be top of mind for both advisers and clients in the new year. This will see super funds being able to provide advice to members, as well as a new classification of ‘qualified adviser’.
According to Ashenden, the latest announcements could offer further clarity, but it will be important to wait and see how draft legislation intends to implement the reforms.
“There is still a way to go. We saw the release of the first tranche of draft legislation for consultation. And now with the Government’s latest announcement around some of the big ticket items that will impact advisers the most in terms of simplifying advice – changes to the statement of advice and the best interest duty – we are starting to get a fuller picture of how the advice environment might change in the future.
“Advisers have dealt with a great deal of complexity in recent years and are vested in how these proposed changes might be implemented. Whilst further consultation may take more time, it’s important that collectively we stay invested in the process to gain the best possible outcome from implementation,” he explained.
Moreover, BT’s research observed that downsizing remains a consistently popular topic for advisers with clients hoping to do so in an effective way.
“It would not be surprising if some of this is driven by the rising cost of living and retirees needing to explore options to boost their savings or increase cash flow. Another potential reason is this strategy has become accessible to more Australians, with the eligibility age reduced down to 55 years at the start of 2023,” Ashenden said.
Impending tax cuts from July 2024 will also be a key strategy for advisers to discuss with clients in preparation, with Australians earning an annual income of $45,000 or above set to benefit.
“The reduced tax rates will be a welcome reprieve for clients facing cost of living pressures,” the BT head added.
For those who have the capacity to top up their super with personal deductible contributions, Ashenden said the tax saving from putting money into super in FY24 will be greater than in FY25 when reduced marginal tax rates come into effect.
The research additionally identified owning commercial property in self-managed super funds (SMSFs) as a top question for 2024.
Clients with SMSFs need to be careful of any improvements they make to real estate assets owned via their SMSF, as these can potentially be regarded as a superannuation contribution, BT recommended.
“If the value of that improvement, together with other contributions, is below the client’s caps, it’s not an issue. If their contribution limits have been breached, there may be penalties.”
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Jasmine Siljic
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I’d be interested to see the figures used for the $90k worse off quote. I did a very rough calc, assuming salary growth of 3% each year and an annual return of 7% before tax, no platform or advice fees and no insurance premiums and the balance at 65 was a under the $3m cap.