Budget delivers ‘stability’ for superannuation policy

As previously reported, the government is extending the temporary reduction in superannuation minimum drawdown rates for a further year for account-based pensions and similar products.

SuperConcepts senior SMSF technical specialist Anthony Cullen noted that there was no affirmation in this year’s budget of the two-year exit measure for legacy pensions and SMSF residency changes that were previously announced in last year’s budget. 

In the 2021–22 budget, the government announced plans to relax the residency requirements for SMSFs by extending the central control and management test safe harbour from two to five years for SMSFs and removing the active member test for both fund types. The government initially intended to pass the measure before 1 July 2022.

It also announced the legacy pension amnesty measure last year, which would allow individuals to exit a specified range of legacy retirement products, together with any associated reserves for a two-year period.

“There was no mention of those measures at all. It’s probably too early to say what that means. We haven’t seen any draft legislation or consultation on either of those measures which we expect there will be,” said Mr Cullen.

“Obviously with everything that was announced tonight with the cost of living, the government were taking a slightly different tac[k].”

Mr Cullen said there is concern within the SMSF industry, however, as to whether there will be further movement on these measures.

“There’s going to be an election announced in the not too distant future and government will go into caretaker mode. We don’t know what’s going to happen with the election but if Labor win, then will Labor pick them up and run with them or will we see them die a painful slow death?

“If the Liberals get in, will they pick it back up? You would hope so.”

With the election to be called relatively soon, Mr Cullen said it’s very unlikely the industry will see anything happening with those measures before the election is announced.

BDO superannuation partner Shirley Schaefer said there are a number of SMSFs still facing significant challenges with legacy pensions such as market-linked, life expectancy and lifetime products, with these types of pensions unable to be commuted except in limited circumstances.

“It would be great if the issues with legacy pensions could be resolved,” said Ms Schaefer.

With the workforce becoming increasingly globalised, the SMSF residency changes are also important, she said. 

“The concern is that if these measures fall off the radar, then industry has to start all over again to try and get them moving.”

However, the government did reaffirm its commitment to proceeding with regulations that will allow commutations to be made from certain non-commutable pensions to resolve excess transfer balance amounts.

SMSF Association chief executive John Maroney said it was “pleasing to see the government decide to move forward with this reform”, with the association a strong advocate of the measure. 

Mr Maroney said the proposed expansion of access to employee share schemes underlines the need for the SMSF industry to have certainty about how the non-arm’s length expenditure rules (NALE) operate, particularly in relation to how discounts are treated for non-arm’s length income (NALI) purposes.

This year’s budget includes stability of superannuation tax and contribution rules compared with the significant and important reforms to superannuation in last year’s budget, he said.

“This simple fact that there were no wholesale changes to the superannuation system is gratifying for an industry that needs a period of stability,” he stated.

The Association of Superannuation Funds of Australia (ASFA) chief executive Dr Martin Fahy agreed that the budget delivered “welcome stability in superannuation policy”.

“There are no major changes to superannuation in tonight’s budget, and the stabilisation of policy settings will contribute to better long-term retirement outcomes and enable consumers to plan for retirement with confidence,” said Dr Martin Fahy.

Mr Cullen also noted that there was no mention of any freeze to the legislated increase of the Superannuation Guarantee.

“So, we will see an increase in that up to 10.5 per cent from 1 July this year,” he said.

The government also announced a number of measures for those receiving the age pension, including the previously flagged one-off $250 cost of living payment.

The payment will be made in April 2022 to eligible recipients, including those receiving the age pension or carer payments, Pensioner Concession Card (PCC) holders, Commonwealth Seniors Health Card holders, and eligible Veterans’ Affairs payment recipients and Veteran Gold Card holders.

It also intends to increase Medicare levy low-income thresholds for seniors and pensioners, families and singles from 1 July 2021.

The increase in thresholds takes account of recent movements in the consumer price index so that low-income individuals continue to be exempt from paying the Medicare levy. The threshold for singles will be increased from $23,226 to $23,365. The family threshold will be increased from $39,167 to $39,402.

For single seniors and pensioners, the threshold will be increased from $36,705 to $36,925. The family threshold for seniors and pensioners will be increased from $51,094 to $51,401.