Australian Superannuation Fund Industry Reaction to Potential New Government Legislation on Funds by Murray LeClair

In recent days, there has been a proposal tabled that would overhaul how superannuation funds will work in Australia. This is something of a delicate matter from a finance industry perspective, with so many people reliant on these funds as a way of ensuring an income after retirement. However, industry regulation is of course important to consumers too, so the proposal merits discussion.

What Is Being Proposed?

The new proposal states that any superannuation fund should have an independent chairman or woman, and that at least a third of trustees should be independent. While it is clear why this is something that may be raised in the public interest, it would require an overhaul of how the superannuation industry works in Australia, and has therefore caused a strong reaction from many people in the industry, including financial services minister Kelly O’Dwyer.

Kelly O’Dwyer’s Response to the Proposals for Changes to Superannuation Laws

Kelly O’Dwyer’s response as financial services minister has been that the new proposals are overly ideological and not sound for the industry. She stated that these changes wouldn’t protect members but create issues in the industry.

“The package of reforms that the government is bringing forward applies equally across the sector to all funds, whether they’re retail, industry or corporate funds.

“This is important because we force people to put money aside from their wages to provide for their retirement income, and people need to know that money is protected.”

These were Ms O’Dwyer’s responses to the proposals. Other analysts believe that this reaction is a sensible one, and the proposals won’t benefit members of superannuation funds, though some still think that the changes would make funds better managed and safer as investments.

Ideology and Finance

The discussion in this case is not so much about whether the proposals represent a nicer situation than the way the industry currently works, but about whether making changes to the systems that govern how Australian pension funds work need to change. People like Kelly O’Dwyer whose role is to understand the effects of changes on both the industry and consumers are understandably very interested in what the potential effects of these changes would be, and whether they would actually lead to benefits for citizens who want to engage with the funds or not.

The opinion of the industry so far seems to be that this change to legislation will not achieve the results it is intended to and will actually be a worse situation for consumers as well as businesses working in the industry.

Are There Other Options for Investors?

While people who want to prepare for their retirement tend to choose superannuation funds, if this is something you don’t currently like the management of, there are other ways of saving that can yield well, or you can start investing in things like stocks and shares as an individual rather than choosing a pension fund. You can also look into things like ‘what is CFD trading?’, and try to make some money to take with you into retirement from that kind of investment instead.

There really is no fool proof way to guarantee your financial stability in later life, other than being really rich, so any choice you can make is gambling on the industry working as it should. Most of us accept superannuation funds as a decent gamble. However how you feel about how they are managed, it is perhaps something you may want to consider in light of these proposed changes.

If you work in the industry, however, these potential legislative changes may well cause a lot of upset to how things are done and change the products that could be developed and sold to customers. Whether you think the ideology behind the suggestion makes sense or not, it is sure to be a period of upheaval. We don’t yet know whether these changes will be implemented or whether those in opposition to them like Kelly O’Dwyer will win the day. However, it is an interesting case to watch for anyone who is concerned with their own funds, or who works in the sector and is worried about changes.

 

“Murray LeClair is a freelance finance writer specialising in stocks and shares, forex and ISAs. After studying business at Lancaster University in the UK, Murray worked at a number of financial institutions in London and New York and is now following his passion for writing.”

 

Refund option for excess superannuation contributions

Posted on by admin

The refund option for excess superannuation concessional contributions up to $10,000 is now law following Royal Assent to the Tax Laws Amendment (2012 Measures No 1) Bill 2012.As a result of the new law, eligible individuals will have a once-only option to have 85% of their excess concessional contributions up to $10,000 released from their superannuation fund to the Commissioner and assessed as income for the financial year in which the contribution was made. The individual will effectively pay tax on refunded excess concessional contributions at their marginal tax rate (less a 15% refundable tax offset for the tax already paid by the fund on the contributions), rather than the potentially higher excess contributions tax (ECT) of 31.5% (in addition to the 15% contributions tax for the fund).

While the refund option will provide some welcome relief in limited situations, it also presents another layer of complexity with further pitfalls for unsuspecting taxpayers.

Eligibility for refund option

The new refund option will only be available for excess concessional contributions in respect of 2011-12 or later years, and only for the first year. However, it will not provide any relief for taxpayers who exceed the concessional cap by more than $10,000 or for breaches before 1 July 2011. To be eligible, the individual must also lodge an income tax return for the relevant income year within 12 months of the end of that year.

The Commissioner will provide eligible individuals with a choice, via a notice of offer, to have the excess concessional contributions released from their superannuation fund to the Commissioner and assessed as income at their marginal tax rate. The Commissioner is expected to provide these notices of offer at a similar time to the current letters he sends to individuals prior to making an ECT assessment

Access to tax credit may be denied

Once the choice to refund is received from a taxpayer, the Commissioner will provide the taxpayer’s superannuation fund with a compulsory release authority for 85% of the amount of excess concessional contributions. If a superannuation fund pays an amount to the Commissioner in accordance with a release authority, the taxpayer is entitled to a tax credit equal to that amount.

However, a superannuation fund will not be required to comply with a compulsory release authority if:

  • the superannuation interests held by a fund is less than the release authority amount, or
  • if the interest is a defined benefit interest, or
  • if the interest is supporting a superannuation income stream

As a result, the release authority exemptions will operate to deny the taxpayer access to a tax credit. In addition, the release authority exemptions will not affect the Commissioner’s refund determination which will remain on foot to include the excess concessional contributions in the taxpayer’s assessable income.

Therefore, a taxpayer will need to consider whether she or he may need to access the refund option on any excess concessional contributions before commencing a superannuation income stream from that superannuation interest. Once an income stream is commenced, it will effectively prevent the taxpayer from receiving a tax credit (via a release authority on that interest) if he or she accepts a refund offer for excess concessional contributions

Posted in Super

Minimum annual pension (income stream) payments

How much is the minimum you must withdraw from your super fund as a pension if you are in pension mode?

Remember that if you don’t need the funds, depending on your circumstances, you may be able to re contribute the amount back into super.  If you do this as a non concessional contribution this can make your super account tax free so that in the event of your passing and your adult children receiving your super, they will receive more of the funds and less will go to the tax man.

 

Back to normal Temporary relief
    2015/2016, 2014/2015 and 2013/2014 years 2012/2013 and 2011/2012 years* 2010/2011, 2009/2010 and 2008/2009 years
Age Percentage factors (PF)  No relief 75% of PF 50% of PF
55-64 4% 4% 3% 2%
65-74 5% 5% 3.75% 2.5%
75-79 6% 6% 4.5% 3%
80-84 7% 7% 5.25% 3.5%
85-89 9% 9% 6.75% 4.5%
90-94 11% 11% 8.25% 5.5%
95 or older 14% 14% 10.5% 7%
Posted in Super Tagged with: