There’s a superannuation tsunami heading our way

The Australian, March 2, 2017:

With just four months to go before a sweeping set of changes is unleashed in the superannuation system on July 1, the lack of understanding on the issue is alarming: the government must act immediately to inform the broader public what is going to happen and who will be affected by the changes.

Though there is effectively only weeks to go before people could possibly organise significant changes to their arrangements in relation to super, a public education program from the government is nowhere to be seen.

Even financial advisers are struggling to grapple with the finer points linked with the changes which are set to change both investing patterns across Australia.

In the vacuum left by the government, the task of explaining the changes is being left to industry professional associations — each with an agenda of its own.

Certainly readers of The Australian attending a range of recent forums arranged for subscribers reveal that even those with a good understanding of the previous regime are at sea when it comes to dealing with the set of rules due to become reality on July 1.

One of the major issues has been the exceptional attention paid to the government’s plan to ‘‘cap’’ individual balances that fund tax-free retirement pensions at $1.6 million.

A lack of clarity in the proposals — compounded by adjustments made by the government in the lead up to the final legislative package — has meant the issue has dominated debate.

But beyond the “cap” controversy, the changes will affect millions of younger Australians who are saving for retirement.

In fact, working Australians still in the so-called ‘‘accumulation’’ phase will be in the front line of the changes. From July 1 the amount an individual can contribute to superannuation in a single year on a pre-tax basis (concessional) will be $25,000 for all ages (down from $30,000 for the under 50s and $35,000 for the over 50s).

From the same date the amount that can be contributed on a post-tax (non-concessional basis) will be $100,000 in a single year (down from $180,000).

Importantly, many Australians still do not realise that the annual concessional (pre-tax) limit of $25,000 will still include amounts relating to the Superannuation Guarantee Charge (SGC) — so for example, if an employer pays in $10,000 in SGC to an individual, the amount that can be contributed on a pre-tax basis by that individual is limited to $15,000.

Paradoxically, though changes are widely expected to partially undermine popular support for SMSFs (also known as DIY funds) investors who are well informed and have been accelerating their super contributions.

According to the latest survey from industry specialists Super Concepts, contributions across the system have almost tripled
in the three months to December 31.

But in the longer run, once the rush of cash before June 30 comes to a logical end, the amount of money entering the super system is expected to fall. There are two reasons for this negative forecast — first, less money is actually allowed to enter the system each year and, second, the industry expects investors will be less enthusiastic about a system that now has very clear restraints.

The looming fall off in super contributions could be the first major setback for the popular SMSF sector that now boasts one million Australians.

A separate industry report from consultants DEXX&R has estimated that from July 1 2017 — the growth in funds under management within the SMSF sector will tail off dropping by
$4 billion a year — as the growth rate in funds is expected to slide from annual growth of 4 per cent to 3 per cent.