It is time to take out the crystal ball and imagine some changes that may be included in the upcoming May Federal budget, or indeed proposed policies to be taken to the next election. Thinking Australians realise that the country is not in as strong a fiscal position as it has been in the past.
Politicians of all denominations seem to view super as some type of golden egg and ripe for the picking and a big part of the potential solution to the budget deficit position.
Perhaps this is just a result of having a Government regulated vehicle which collectively holds nearly $2 trillion in retirement savings for Australians.
There may be some changes made to the present system, but being politicians the changes will likely be sensitive to ‘voter- land’.
There has already been talk in the press of closing loopholes where tax minimisation rather than retirement savings appears to be the main motivation in the game.
It is with a crystal ball view of possibilities that savers must now consider their future and positioning. Some possible changes have been leaked to the media.
Many are teasers to promote controversial discussions and gain some understanding of tolerance and levels of acceptance among voters and opposition parties.
Some proposals, commonly discussed in the media, may never eventuate, but on the other hand they just might. What planning can take place to utilise the super tax-saving opportunities that are presently available but which may possibly disappear or be under less attractive conditions in the future?
There has been a proposal to eliminate anti-detriment payments. Anti-detriment payments are voluntarily made by some super funds, such as Australian Catholic Superannuation, to superannuation dependents, when a member dies.
They are in effect a refund of contributions taxes paid during the life of the member and related by formula to the account balance at the date of death. The Opposition has not flagged any issues with the removal of this additional payment to the beneficiaries of members.
Instead they appear to support the view that super was designed for the retirement of members not the welfare of the beneficiaries after the member’s death.
Antidetriment payments are tax deductible to super funds but these deductions have been flagged as something that may disappear.
Unfortunately, there is not much one can do about this, as planning for receipt before the May budget, or some other announced policy date, would be somewhat dramatic and benefit only beneficiaries.
One big change which has been flagged could be the abandonment of new ‘Transition to Retirement’ account based pensions.
In a transition to retirement pension someone who has reached their preservation age (which is now 56 at least), is allowed to start an account based pension and draw between four per cent and 10 per cent of the account balance each financial year, even when working full-time.
Once the person turns 65 years old, the transition to retirement pension becomes an unrestricted account based pension anyway and the previous arrangements automatically convert.
It has been mentioned in the press that many people tend to be using transition to retirement strategies as a means of saving tax or accessing accumulated retirement funds prior to
retirement, rather than as a means of income support when working in a reduced capacity before final retirement.
In much of the political commentary around at present, there is a general acknowledgment that transition to retirement pensions already in existence will most likely be allowed to continue.
In other words there will probably be grandfathered treatment for those who started the account prior to an announcement date, if any such changes eventuate.
This is, of course, simply a possibility and there may be no changes announced in relation to these accounts.
However, as a precaution, if one is eligible to commence a transition to retirement pension under current conditions then perhaps he/she may be wise to seek advice as to the suitability of this strategy to their situation.
It is possible that this door may close to new pensions from an announcement date but if so it is unlikely that existing pensions will be affected.
So how should we make the most of the uncertain future regulatory climate? There has been commentary in the press that self-managed super funds may come under even greater scrutiny
than at present.
Furthermore, there has also been commentary around lifetime caps in super and possible reductions in concessional caps.
Whether the amounts allowed into the super vehicle are reduced in future, restrictions it is likely to be prospective rather than retrospective. In other words, given that savings in super are preserved for genuine retirement, if one has surplus funds to invest in super within our current caps, then that person may be wise to obtain professional financial advice as to whether they should act sooner rather than after the May Budget.
It has been recognised by studies commissioned by the Financial Services Council that people who sought personal financial advice usually have substantially more money in retirement.
Similarly, those individuals who seek to educate themselves financially also tend to make better financial decisions. In all saving practices the earlier the better, but it is never too late to improve your financial situation!