After last year’s horror budget for SMSF trustees, the more than 1.1 million people who chose to manage their own retirement savings are walking a little taller this morning in the wake of Treasurer Scott Morrison’s 2017-18 Budget speech.
The Treasurer made few changes to superannuation, and those he did make mostly made good policy sense (of which more later).
Quite clearly the message that our industry sector sent to the Government after the upheaval to superannuation ushered in with the 2016 Budget appears to be have been heeded. Trustees can hope that government will think longer and harder before instigating such a drastic overhaul again.
But I for one won’t be holding my breath. If the SMSF sector secured a small win with last night’s budget, this is no guarantee that future governments will stay their hand when it comes to superannuation policy.
After all, the economic imperative that underpinned last year’s changes – a ballooning budget deficit – remains a fact of life. When coupled with ongoing media, industry (some sections), and academic commentary that the tax concessions remain inherently tilted in favour of the wealthy, then the argument for further change to superannuation (especially in relation to the tax concessions) is not about to go away.
This is why I argue two policy measures are imperative if we are capitalise on last night’s “good news” budget and make it that much harder for Canberra to keep moving the superannuation goal posts.
First, it’s vital that the legislation defining the goal of superannuation passes the Parliament. The Murray Inquiry rightly saw such legislation as giving the system far greater stability, enhancing the community’s confidence. After all, when you ask people to forgo income today for tomorrow’s retirement savings, then they have a right to expect a stable policy framework underpinning that system.
Second, there is an urgent need to take any future changes to superannuation out of the budgetary cycle. No one expects our system never to change; indeed, there are changes I am certain the SMSF community would welcome.
But these changes need to be solidly debated by the industry, the Parliament, and the wider community – with the sole goal being to improve the system. Far too often in the past the Government’s fiscal needs have been the prime motive for change.
In relation to the two major policy changes in the Budget linking superannuation with housing, we can be thankful the Government’s only concession to first home buyers in terms of using super to buy their first house will be to allow access to their voluntary contributions from 1 July 2018. Under the new scheme, up to $15,000 a year (and $30,000 in total) can be contributed to help fund a house deposit.
The sole goal of superannuation is for retirement savings, so by excluding Superannuation Guarantee contributions the impact of this measure on future retirement savings has been limited.
Indeed, it will be interesting to see how many first home buyers can take advantage of this measure; one suspects very few.
The other measure, which will allow people aged 65 and over who are downsizing their homes to make a non-concessional contribution (NCC) of up to $300,000, is sound policy. It will be in addition to existing contribution caps, as well as being exempt from existing age and work tests.
Rightly, there are restrictions. The house must be the principal residence and a minimum 10 years’ ownership will be required to take advantage of this measure. For a couple, it will mean they can contribute up to $600,000 to superannuation outside of the existing caps and balance restrictions. Considering the cap restrictions that take effect on 1 July, this measure will help some approaching retirement to be more financially secure when their pay cheques stop coming.
Now that the Budget announcements have been made, we can refocus on the extraordinary work still pending for many trustees with implementing the Super Reforms between now and 30 June!