The last sitting week in parliament for 2024 turned out to be a significant one, particularly for the superannuation sector. From an SMSF perspective, there was both good and bad news.
With regard to bills that were passed, the objective of superannuation was finally enshrined into law. This was a bit of a surprise seeing discussion about this measure had been completely put on hold as it took a back seat to the proposed tax on total super balances above $3 million, more commonly referred to as the Division 296 tax. To be fair, it was actually the first item of business relating to superannuation the Albanese government wanted to address upon its ascendency to power.
So now the law stipulates the objective of superannuation is “to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way”. This was the original wording initially proposed when the Labor government announced the measure, even though there was a lot of debate as to whether it was appropriate – bear in mind all superannuation policy must now be compatible with this law.
Some of the more contentious terms are “dignified retirement”, “equitable” and “sustainable”, and we still don’t really know what they mean. What is considered “dignified” when it comes to a person’s retirement? Common sense dictates what one individual thinks fits this definition might be completely rejected by another person. After all, the industry has never been able to pinpoint how much money you actually need to fund your retirement.
When determining the meaning of “equitable” and “sustainable”, again we remain unsure. If we look at the “equitable” concept when applied to the proposed Division 296 tax, would it be considered equitable to introduce policy that will only affect 80,000 superannuants?
And “sustainable” as well is a broad term. Is it about the sustainability of the system itself or the sustainability of the greater societal issues? Further, if it is the latter, will we be forced to use our retirement savings in a particular way, such as investing in green energy or affordable housing projects? I suppose only time will tell on all of this.
Let’s move on to what didn’t get through, namely the bill to introduce the Division 296 tax. This was a great result for the SMSF sector and has some stakeholders declaring the bill is a “zombie measure”. I tend to agree with this point of view as, from a political perspective, I don’t think the Albanese government will want to be including this measure on its platform to be re-elected, particularly in light of its promise not to touch super at the last election.
In addition, even Labor politicians seem to be resigned to the fact the best-case scenario for them is to be returned as a minority government next time we go to the ballot box. Should that be the case, the ALP will be reliant on the Greens to push legislation through and that would potentially mean lowering the threshold of the Division 296 tax to $2 million and abolishing the ability to use limited recourse borrowing arrangements – something I don’t think anyone in Canberra has an appetite for.
But we shouldn’t get ahead of ourselves. So while we can acknowledge this is a good result, we can’t be popping the champagne corks just yet.
Unfortunately, the non-passage of the Division 296 tax bill might have come at a cost as the measure to allow problematic legacy pensions to be addressed is heavily dependent on it. To this end, there is a school of thought the legacy pension amnesty was only announced because of the complexity they would add when calculating the $3 million Division 296 tax trigger threshold. So no new tax will mean this is no longer an issue.
While we all recognise legacy pensions do not affect a broad section of the Australian community, they are an outdated structure no longer fit for purpose or relevant as a result of subsequent changes to super laws.
And to apply the newly legislated objective of superannuation, surely legacy pensions would fit into that non-sustainable category. We can only hope the government will commit to the elimination of these redundant income streams, regardless of any other retirement savings policies.
So one bill up and one bill down. Still, I think it can be viewed as a net win.
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