In its pre-budget submission, the SMSF Association noted that in the current inflationary environment, the indexation of various superannuation thresholds and caps may be triggered.
Following the release of the CPI figure for the December quarter, the transfer balance cap is set to index to $1.9 million on 1 July 2023 in the absence of any legislative amendment.
The increase in the general transfer balance cap means the total superannuation balance threshold will also increase to $1.9 million.
The SMSF Association has urged the government to allow the process to “operate as legislated and in accordance with the original policy intent”.
The association noted the impact of inflationary pressures and its effect on Australian households in its submission.
“For those on fixed incomes and finite resources, the risk of eroding their future income benefits is very real. Noting for many retirees, they do not have access to other sources of income and are unable to return to the workforce to address any income shortfall,” the submission stated.
“The impacts of the current environment must be considered alongside longevity risk as Australians live longer, increasing medical costs and aged care funding.”
The SMSF Association’s comments follow industry speculation last year that the government could look to freeze indexation of the transfer balance cap.
Colonial First State head of technical Services Craig Day previously stated that with the government grappling with a huge budget deficit they may be looking for savings.
“There’s always a risk that the federal government could actually freeze indexation of the transfer balance cap,” warned Mr Day.
Mr Day said it’s important that advisers keep this legislative risk in mind when applying strategies that involve delaying pensions or contributions because of an increase in the cap or threshold.
“If the federal government says in the federal budget that you’re not getting that indexation, well, you’ve potentially just missed out on those tax free investment returns by delaying the pension and you never got to take advantage of putting the extra money into super,” he stated.
Speaking in a recent webinar, Smarter SMSF chief executive Aaron Dunn said while the Labor government has made it clear that they will be looking at superannuation, he said it’s still unlikely that they would amend the indexation of the general TBC.
Mr Dunn noted that the government would have to make an amendment to the law in order to put a freeze on indexation.
“Realistically, they’re not going to do anything retrospectively. So, if you had planned to wait until 1 July to start a pension and then something came out about a freeze in the budget, then you could start the pension immediately and apply the credit from that point in time,” he said.
This government has a choice to make. Leave it all as is or fix the entire thing. Any band aids for one thing are just kicking the can down the road. One easy solution for the government to fix the deficit is to just remove the super fund exemption. All superfunds pay 15 % tax on all their income.
Wouldn’t freezing indexation be an easy way to clip super tax concessions? The indexation rules are inordinately complicated and need fixing so putting in a freeze now will help ease the mess that is building. Anyone that worked with the previous capping system called RBLs will attest to just how difficult this becomes when there is a myriad of very personalised caps.
Until partial indexation is removed from the law, indexation is a double edged sword.
Remove the proportional rule. The amount of lost tax revenue would be a minuscule in proportion of the governments management costs of this stupid system. Let alone the privately incurred costs.