Payday super, retirement covenant can influence SMSF: educator
It may seem that payday super has little to do with SMSFs but it is a measure that triggers many other elements, says a leading technical expert.
In a recent webinar, Tim Miller, head of technical and education for Smarter SMSF, said that, in essence, payday super is trying to align the payment frequency of superannuation to match salary and wages.
“Some may think, well, what does this have to do with SMSFs?” he said.
“I think it is clearly a measure that's targeting all elements of the superannuation industry, and it's really a reflection on the tax officer reporting that there's a shortfall in PAYG obligations from an employer's point of view, but that shortfall certainly blows out when it comes to super guarantee obligations.”
Although the shortfall is still in single-figure percentages, Mr Miller said when that is turned into a dollar amount, it is quite a significant number of people who aren’t having their superannuation provided for them by their employers.
“And that reporting then gets even more cloudy when it comes to SMSF because the reporting requirements are a little bit less,” he said.
“The implications of something like payday super are that it gives certainty and greater transparency for members to understand what contributions are being made into their superannuation fund, but it could also result in greater red tape for employers.”
He added there are some assessment guards now in place in the reporting of contributions as well.
Aaron Dunn, CEO of Smarter SMSF, said the sector now only has an annual obligation to report contributions that form part of the member information.
“APRA funds report on contributions on an ongoing basis, so the question is does it then end up being something that the SMSF industry needs to fall into in the future?”
“We are already looking at things like quarterly reporting for TBAs so these are things the government is looking into at this point.”
Mr Dunn said one of the other areas in which SMSFs may need to be watchful is the discussion paper around retirement income.
“Quite clearly, from an industry or professional viewpoint, the concept of retirement is nowhere near as advanced and mature as what we have in the SMSF industry. We've got north of 40 per cent of SMSFs already paying pensions,” he said.
“But there are a number of key areas that the government is really looking at here to improve.”
He said one of those is retirement products and how they can support individuals as they move into the retirement phase. Moreover, with Baby Boomers already moving into that phase, the shift is going to be quite profound over the next decade.
“We've seen multiple attempts to alter the retirement system and reports over the last 10 years and of course, one of the key ones was the retirement income covenant,” Mr Miller said.
“The covenant that we saw introduced a couple of years ago excluded self-managed super funds and from reading the latest paper it looks like the government is thinking it needs to introduce that again for SMSF trustees to give a little bit more direction.”
Mr Dunn said as the paper moves through from the consultation phase, it will be important for the SMSF sector to look closely at what it may mean for the future mechanics of account-based pensions.
“That whole minimum pension factor has always been an ongoing issue, and so it will be interesting to see if this will result in additional products being available in the SMSF space,” he said.
