In the latest SMSF Adviser podcast, Aaron Dunn, CEO of Smarter SMSF said the exposure draft, which is open for consultation until 29 September, indicates it will most probably be a stand-alone piece of legislation.
“I think there’s a couple of things that we can take away from what has been added into the exposure draft,” he said.
“First and foremost, when we talked about this consultation earlier in the year, there was discussion about whether it was going to be a standalone piece of legislation or whether it was actually going to sit within the existing confines of the SIS Act and its regulations,” he said.
“This latest draft now makes it clear it will be its own piece of legislation and won’t step on the toes of other elements of the SIS Act and regulations, so things like sole purpose tests, and so forth, are still there.”
Mr Dunn said in this draft exposure, the objective of super is defined as “preserving savings in which to deliver income for a dignified retirement, alongside government support in equitable and sustainable ways”.
“There’s no real change to that,” he said.
“Some of the commentary around this at the start of the year, where they looked at defining some of these elements, hasn’t really changed, but they have put just a little bit more information within the explanatory memorandum about how they’re going to be looking at those topics as well.
“The definition of those terms is important.”
He said the definition of terms like “preserving savings”, “delivering income” and “dignified” are the major terms being discussed.
“They will be defining what qualifies as a dignified retirement, and of course, what qualifies as being equitable and what qualifies as being sustainable,” he said.
“They’re the kind of broad terms that need to have some kind of definition so that everyone that’s working on this understands what’s happening.”
Mr Dunn suggested that once these terms are clearly defined, the government may consider implementing a mandated drawdown requirement at the age of 65 years.
“A good example [in this draft exposure] is the talk around the delivering of income and the objective they talk about there is for it not to be prescriptive.
“If you read the explanatory memorandum it talks about the flexibility that you can actually do to deliver that income.
“The reality is, that it’s not going to be in a prescriptive form that says, ‘that’s what you must do’.
“There will still be opportunities to think about how that income would be delivered, based upon each individual’s circumstances.
“What it may mean is, if you want to take a lump sum, you can, but then you might not be using superannuation, you might be using your own personal circumstances or some other non-superannuation structure.
“But the mechanism has been that you’ve saved it for retirement, and you’ve got concessional tax treatment, and you’ll be using that for a purpose in retirement that is still linked to cost of living, transport, health, aged care.”
He added that it will be interesting to see how quickly following this consultation, the government “pulls the trigger” on the $3 million super tax legislation.
“They were pretty trigger-happy when it came from the initial consultation on the objective to the $3 million measures,” he said.
“And now the government may go back and say, ‘we’ve got to lock this stuff down first before we start to make those changes’, or we may see these two things work in tandem, whereby we will shortly get a similar exposure draft that would deal with the $3 million measure, and then we’ll go through that same process as well.”
The Objective of Super legislation is not for the industry, it is for the policy setters (Treasury and then parliament). And ultimately, is more about the current government winning the “super wars” that seem to play out between the major parties. No more FHSSS or early release for pandemic responses, for example.
The earnings surcharge was exposed earlier than the government wanted it to be so it has left this concept of consultation on an Objective in order to frame better super policy as yet another example of policy being decided and then retrofitted for the politics.
I will however be keen to see how it will tick the 1.47 Paragraph in the “Equitable” section of the EM – “policy makers should give appropriate consideration to the system-wide impacts on equity of proposed changes.” The earnings surcharge has a disproportionate impact on SMSFs and, the purported low number of impacted members, is no excuse for poor law design.