Many of the superannuation changes contained in the Federal Budget deserve to be welcomed, but others fall well short of achieving a sensible objective.
The key question which ought to be asked about the superannuation changes contained in the Federal Budget is whether they are appropriate to endure the life of the next Parliament.
Because if there is one thing the major parties have been able to agree upon, it is that superannuation policy should not be subject to change at every Budget. They agree that once the “purpose” of superannuation has been established, superannuation policy development should become relatively static, therefore engendering more certainty in the minds of superannuation fund members.
But, objectively, are the changes announced by the Treasurer Scott Morrison in the 3 May Budget an appropriate mix capable of serving the best interests of superannuation funds and their members over the three-year life of Parliament? Arguably not.
At best, what Scott Morrison delivered in terms of his Budget changes to superannuation represent 85 per cent of what the superannuation industry’s various policy strategists might have hoped for and well short of what the broader industry would like to see locked in place for the next three years.
The 85 per cent the Treasurer got right in his superannuation announcement included the virtual retention of the Low Income Superannuation Contribution in the form of a Low Income Super Tax Offset, a rebalancing of tax concessions away from high income earners, and the removal of the work test requirement for super contributions for people aged between 64 and 75, and the virtual ending of the very generous transition to retirement (TTR) arrangements.
Where Morrison went wrong was in lowering the concessional contribution cap to $25,000 and the retrospective application of the new, lower limit for after-tax (non-concessional) super contributions.
Some would argue that the Treasurer also erred with respect to the $1.6 million super cap, but that depends on the perspective of those seeking to make the argument.
Where the Treasurer clearly did fail was with respect to the retrospectivity elements and the reduction to the concessional contributions caps in circumstances where both will impact the ability of people to build their super balances during those times when they can afford to do so.
Prior to calling the election, the Government made clear its approach to developing the “purpose” of superannuation and it was clear that the broad underlying objective was to relieve pressure on the Age Pension and other elements of the social welfare expenditure over future decades. The 2016 Budget does not go far enough in seeking to inject some momentum behind this objective.
Elsewhere in this edition of Super Review, the chief executive of Pillar Administration, Peter Brook has pointed to the need to encourage people to utilise superannuation to take care of their retirement income needs. He goes further, suggesting that the Government should be providing positive incentives for people to do so. He is right and lowering the concessional contribution cap runs counter to this objective.
It is highly unusual for a Federal Budget to be brought down and for a Federal Election to be called less than a week later. Thus, there will be much debate about the Government’s superannuation policy and a good deal of scope for refinement.
Both sides of politics need to accept that superannuation is too important to be influenced by either Budget or election cycles.