Rising to a super challenge
The Federal Budget ensured that Treasurer Peter Costello emerged as the most influential person in the Australian financial services arena in 2006.
The changes announced by Costello in the Budget not only radically altered the underlying fundamentals of the superannuation industry but also altered the ground rules for financial planners seeking to assist clients approaching retirement.
While in previous years Costello had left it to his junior ministers to pursue the implementation of key policy changes such as the co-contributions regime, this was not the case with the changes announced in his 2006 Budget.
The key changes announced by Costello were the removal of the Reasonable Benefits Limit (RBL) and the tax on superannuation withdrawals.
In what he described as a “simplification and streamlining” of the superannuation system, Costello announced a removal of the benefits tax on superannuation for people aged 60 and over from July 1 next year, plus abolition of RBLs.
As well, the Budget extended access to the co-contributions to people who are self-employed.
Under the Government’s plan, Costello said people who had already paid tax on their super contributions and earnings would not pay tax on their superannuation benefits from July 1, 2007.
The Budget changes meshed neatly with Costello’s earlier transition to retirement policy proposals, by sweeping away the complexities retirees face when taking their benefits.
Costello claimed that, because superannuation benefits would no longer be assessable income, there would be an incentive for people to continue to work while drawing down on superannuation because they would pay less tax on their work income.
After an extensive consultation period, the changes announced in the Budget were promulgated without significant change.
The simplification delivered by the Budget changes was underscored by the fact that they effectively eliminated the need for term allocated pensions — one of the devices born out of the 2004 Budget.
While Costello’s Budget succeeded in winning the plaudits of a broad cross-section of the financial services industry in 2006, he won few friends among financial planners when he suggested during the Budget lock-up that the changes would lessen the need for obtaining financial advice.
Industry spokesmen suggested that while the Budget changes had, indeed, simplified some elements of the superannuation/retirement equation, they had not altered the need for people to obtain qualified advice.
— Mike Taylor
AUTHOR
Mike Taylor
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