IFPA urges government to scrap super balances
Superannuation balances should not be capped, the Institute of Financial Professionals said in its submission on the Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023 and the Superannuation (Better Targeted Superannuation Concessions) Imposition Bill 2023.
The IFPA said it had examined the bill and explanatory memorandum materials and remains opposed to the government’s proposed Division 296 tax on super balances above $3 million, reiterating that it was the same conclusion it had reached in its previous submissions to Treasury on 17 April and 18 October, 2023.
The key concerns of the association remain around the imposition of a cap on superannuation balances, and the submission stated that larger balances represent a small cohort of individuals – less than 2 per cent of SMSF members.
“This small cohort of large account balances are the exception rather than the norm. They exist due to the superannuation policies that were around in the past,” the submission said.
“Changing the law and applying the change on a retrospective basis will penalise individuals who adhered to the rules that existed at the time.”
Additionally, the IFPA said changing the rules due to this small cohort of individuals will only create further complexity and uncertainty, causing individuals to second guess whether they should put money into their superannuation.
“More complexity also increases the need for superannuation members to obtain more complex advice,” it said.
“The issue of extremely large superannuation balances will not continue as a result of the 1 July 2017 changes which placed further limits on contributions. Further, the limit on amounts that can be held in the tax-free retirement phase has helped reduce the number of large balances that exist.”
Finally, the IFPA said that most individuals with large balances are held by older Australians and considering death benefits must be compulsorily cashed out of the system, it is only a matter of time before large balances will eventually leave the super system.
“We believe individuals must be reassured by the stability of the superannuation system from not seeing any further major changes,” it stated.
“This will allow individuals to better plan their retirement strategy knowing the rules won’t change over the short or long term.”
The association put forward an alternative to capping and thresholds, suggesting the government could align the TBC with the $3 million threshold and retain contribution caps but simplify the TSB thresholds.
“This will still limit the maximum amount that individuals can keep in the tax concessional superannuation environment, but a streamlined process will simplify the retirement planning process for many Australians,” it stated.
“The superannuation system is already very complex and it is our view that we need to simplify and streamline a number of these thresholds and caps into a single threshold.”
