Point of view: After the election dust has settled

With a Coalition Government not only returned to power, but also set to gain control of the Senate, what is the outlook for superannuation?

Some stability for superannuation (at least in the short-term) is the initial outcome.

The Coalition election policies did not propose changes to super legislation. Labor wanted to reverse many of the recent legislative changes and this view was backed by some of the minor parties. So the rules that are currently in place, stay in place. This is some relief for people weary of the constant changes to superannuation.

Superannuation is a long-term investment, and due to the preservation rules, investors want to know what they can expect for their money. Investment markets are volatile enough without governments making short-term decisions to achieve political gains or to generate taxation revenue.

In the Coalition’s election 2004 policy document ‘A Stronger Economy, A Stronger Australia’, it states that “… planning and preparing for Australia’s demographic challenge is one of the Coalition’s highest priorities. This challenge is the challenge of funding for the retirement of an ageing population, of which superannuation is a key element”.

So while no short-term changes to super are on the horizon, our superannuation system can only meet this challenge and create a robust system for generations ahead with a cohesive review, which hopefully has bipartisan support to avoid continual tinkering.

One of the Coalition election promises was to establish a national consumer and financial literacy foundation to improve consumer education and understanding. The superannuation system is extremely complex so while education is important, simplicity should also be an agenda item. The education process could see an important role develop for financial planners.

In the lead-up to the election, the Coalition announced some new tax and welfare initiatives that will impact on financial planning. These include:

n an increase in the private health insurance offset from 30 per cent to 35 per cent for people aged 65 to 69 and to 40 per cent for those over 70;

n a new $200 payment to self-funded retirees holding a Commonwealth Seniors Health Card as compensation for some of the discounts available only for Pensioner Card holders;

n extra assistance for childcare through a 30 per cent rebate for the costs of approved child care, better support for grandparents who care for children and an increase in Family Tax Benefit Part B;

n a mature aged worker tax offset that will provide a rebate up to $500 on earned income for people over age 55;

n introduction of a Future Fund to help fund the cost of public service superannuation liabilities to ease budget pressures; and

n an exemption from the Centrelink assets test for the accommodation bond paid to hostels.

It is only the last of these proposals that may really have a significant impact.

For example, consider a woman who is asked to pay an accommodation bond of $130,000 upon entering a hostel. If the woman sells her former home to pay the bond she is then assessed as a non-homeowner.

The $130,000 bond is inaccessible to her for the duration of her stay in the hostel and does not provide her with any income, but it is assessed as an asset to determine her age pension entitlement. If the proposal is implemented, the bond will become an exempt asset. This appears to be a favourable change, but the true value will depend on how it is implemented and any other legislative changes it may trigger.

As well as the new proposals, there are some outstanding items that should remain on the agenda.

The Coalition stated its intention to continue discussions with the industry to amend superannuation laws and introduce the long-awaited splitting of superannuation contributions. This would allow both personal and employer superannuation contributions to be directed to a spouse’s account to maximise the use of each person’s Reasonable Benefit Limit and tax-free post-1983 threshold.

A review was also proposed early next year on the income stream restrictions placed on self-managed superannuation funds in the May Budget.

Assuming it will control the Senate (from July 1, 2005), the Government has greater ability to deliver on its promises. However, the new Government has announced its intention to review the promises to determine which ones can be implemented.

We can also expect the Government to raise again a number of legislative changes, such as the further sale of Telstra, that have previously stalled in the Senate.

Louise Biti is head of technical services at Asteron .