Many in retirement are travelling comfortably, with three key factors contributing to their happiness – good physical and mental health and enough money to enjoy life.
Perhaps the assumption that markets are still anchored by predictable economic policies needs to be challenged. For the first time since the fall of the Berlin Wall, political volatility – once background noise – is potentially reshaping investment risk at a structural level.
Challenging proposed super tax changes, SMSF groups target $3 million cap
Self-managed superannuation fund (SMSF) industry groups and others have come out swinging against the federal government’s plan to reduce the tax concessions available to those with more than $3 million in super, calling it unsustainable as proposed and discriminatory to SMSFs.
In response to Treasury’s consultation paper, Better targeted super concessions, which would increase the headline tax rate to 30 per cent from 15 per cent for earnings on any part of an individual’s super balance that exceeds the $3 million threshold, bodies including the Self-Managed Superannuation Fund Association (SMSF Association) and the Financial Advice Association Australia (FAAA) have filed submissions criticising aspects of the changes, which are set to take effect July 1, 2025.
“The proposed model has been designed for APRA [Australian Prudential Regulatory Association]-regulated funds, yet three-quarters of the estimated 80,000 members being impacted are SMSF members,” SMSF Association CEO Peter Burgess (pictured) said. “The lack of equity and unintended consequences arising from the proposal are driven by a desire to placate the large APRA funds – a clear case of the ‘tail wagging the dog.'”
Several submissions took issue with the design of the tax concession threshold, saying it would be inequitable to SMSFs.
“It is unfair that SMSF members with balances above $3 million will be required to pay tax on unrealised gains because some APRA-regulated funds may find it difficult to report the taxable earnings attributable to members,” Burgess said. “We are asking the government to give these funds the opportunity of reporting actual earnings rather than the proposed model, which would calculate earnings based on the movement in the member’s total super balance and which, by definition, includes unrealised gains.”
The Australian Shareholders’ Association (ASA) submitted a consultation paper arguing, among other things, that the $3 million cap should be indexed to inflation.
“The continued ad hoc changes to superannuation reduce the confidence of self-funded retirees and those who aspire to be self-funded in the future,” ASA CEO Rachel Waterhouse said. “The way of introducing this policy is scaring superannuation builders out of holding higher balances where they are able to restructure their affairs to do so.”
She noted there will likely be more than the expected 80,000 individuals affected, considering surviving spouses and people captured by the $3 million cap not being indexed for inflation.
“We agree there is a need for some change to the retirement incomes regime so it is fair and sustainable,” Waterhouse said. “A five-year phase-in period would allow funds to change their asset allocation in an orderly fashion and also allow the development of a reporting regime to enable a more appropriate taxation of realised profits.” She also suggested enabling special transition arrangements for balances that exceed $3 million because of a partner’s death.
In a statement outlining its submission to Treasury, the FAAA said it broadly supports Treasury’s intent in seeking to ensure super tax concessions are administered fairly, reasonably and equitably, although it raised some concerns.
“We are open to the principle that those with very substantial superannuation balances would not have unlimited access to the tax concessions on superannuation earnings,” FAAA chief executive Sarah Abood said.
“However, we have reservations about the impact of some of the proposals, and any unintended consequences,” she added, pointing to the complexity of the proposed earnings calculations and saying the threshold should be higher than $3 million and indexed to CPI increases.
The FAAA also recommended reducing the increased tax rate to “materially below 30 per cent” so as not to disincentivise Australians from investing in super in their earlier years in the workforce. And it cited concern that the proposed formula for unrealised gains “would result in Australians being required to keep their money invested in what might be a higher tax environment than is optimal, and losing the many benefits of deferred consumption that the superannuation system encourages.”
According to Abood, “priority should be given to identifying solutions to these issues, in order to improve the short- and long-term certainty for consumers regarding proposed changes to the superannuation tax concessions.”
The SMSF Association also argued the consultation period on the proposed model was insufficient.
“Through engagement with our members, stakeholders and other industry groups we are seeing new concerns arise daily, and the limited consultation period has not allowed sufficient time to properly consider the impacts and identify the unintended consequences,” Burgess said.
