This month’s federal budget contained very few changes to superannuation and those it did could be considered sensible and consistent.
From an initial analysis it looks like the government finally got it right when it comes to introducing measures that will effectively cut red tape and administration costs incurred in the running of an SMSF.
This conclusion can be evidenced when looking at the government’s new approach to the calculation of exempt current pension income (ECPI). It has greatly simplified the process and minimised the likelihood of encountering compliance troubles with the rules.
Firstly, it has eliminated the confusion that reigned over the ECPI calculation for SMSFs that had members who were in 100 per cent pension phase at certain times during a financial year and having an accumulation account and pension account at other times.
Previously the ATO had wanted trustees in this situation to get multiple actuarial certificates to calculate their ECPI, with the industry trying to mount a case against this cumbersome and costly practice. Well common sense has now prevailed and trustees in this situation will be allowed to choose their preferred method of calculation.
Secondly, the government has stipulated actuarial certificates will no longer be required for ECPI purposes for SMSFs with members entirely in pension phase. This again has eliminated the need to take into account the presence of disregarded small fund assets that required having to secure an actuarial certificate even if an SMSF had no members in accumulation phase.
It cannot be refuted these two measures will lower costs and reduce the amount of administrative complication for SMSF trustees, so a big green tick should be given to the government on this score.
In a similar vein the decision to waive the work test exemption for people aged 66 and 67 is another blow for common sense when it comes to retirement savings policy.
Too many times when it comes to superannuation, regulatory and legislative factors are assessed in isolation, resulting in contradictory rules.
This development means the parameters governing contributions made to a super fund in retirement are now aligned with the age pension rules.
Again, this should make things a little clearer by having fewer age restriction rules to have to remember.
In addition, the relaxation of the work test and allowing people aged 66 and 67 to use the bring-forward rule with regard to non-concessional contributions achieve a slightly better alignment with financial priorities dictated by life cycles.
It’s pretty safe to say the financial focus of most Australians revolves around a time line of being able to afford getting married, owning a home, putting the kids through school and then thinking about funding retirement.
Acknowledging this and implementing more ways by which individuals can get additional money into their retirement savings vehicles has to be what is needed from a behavioural finance perspective.
Probably the only disappointing element was the decision to delay the inclusion of SMSFs in the SuperStream system. Originally SMSFs were to be included in the regime from 30 November this year, but now they will not be subjected to these rules until 31 March 2021.
This means rollovers from other funds into SMSFs, and vice versa, will not be processed in a more efficient manner for another couple of years. Not ideal, but certainly not the end of the world.
So overall in my opinion the government gets a solid pass mark for this year’s budget.