The commencement of a new year often brings with it an air of optimism about the good things to come over the next 12 months. Well unfortunately if the end of 2023 is anything to go by, this sentiment will not be shared by the SMSF sector.
I’m sure you’re probably asking how this can be because 2023 was not a good year when looking at superannuation policy the Albanese government handed down. How could the horrendous treatment of SMSFs under this government possibly continue?
And it is a valid question to ask. After all, over the course of last year we saw some of the most egregious policy announcements to come out of Canberra.
Of course the big one was the proposed 15 per cent tax on total super balances over $3 million. But it didn’t end there. Included in the government’s 2023 initiatives was the finalisation of the position over non-arm’s-length expenditure regarding expenses of a general nature – a measure many stakeholders have argued is totally unnecessary and an example of complete overreach.
However, right at the end of last year, on 4 December to be precise, Treasurer Jim Chalmers and Assistant Treasurer and Minister for Financial Services Stephen Jones jointly released a discussion paper to examine how superannuation can be used more efficiently in retirement.
On the surface this sounds okay, but one of the aims is to determine the ability of SMSFs to maximise income and manage risk.
The official sounding objectives were in fact broken down by the two ministers, basically revealing the exercise is aimed at improving the retirement income solutions the system, or in other words the industry fund sector, is providing for the Australian public.
This still seems alright seeing the operation of public offer funds has been to date pretty pathetic on this front, but roping SMSFs into this exercise makes no sense at all.
Even a cursory look at the state of affairs of retirement income solutions would allow Chalmers and Jones to learn that currently SMSFs are the gold standard regarding this aspect of the superannuation system.
To this end, one of the main reasons Australians decide to run their own super fund is the ability to formulate and tailor a suitable retirement income solution for themselves as the fund of which they were previously a member could not provide this service. Of course, the pervading demographic of the sector would suggest this.
The solution many turn to is using an account-based or allocated pensions and the government noted this, stating 84 per cent of retirement savings are currently held in one of these structures. Now I’m not saying they are absolutely the best solution, but they seem to be doing a pretty good job so far.
In the same breath, however, Capital Hill acknowledged only 3.5 per cent of retirement savings are held in annuities, suggesting this presents a problem. Really?
It begs the question whether Jones understands the characteristics of an annuity and how they actually work. While they can provide a guaranteed income stream, they are considered expensive and any remaining monies in the annuity pool cannot be retrieved once the individual in question dies.
Compare this with an account-based pension that can be reverted to another fund member in the event of death. Which would you say is more equitable and flexible?
The message we take away from this discussion paper and the statistics quoted is the government is wanting to push a greater number of SMSF trustees into products that are more expensive and less efficient and along the way further restricting the very freedom of choice these funds offer – exactly what people love about them.
And, of course, this would represent yet another potential piece of policy that won’t exactly benefit the cause of SMSFs.
From this last announcement of 2023 I would predict more of the same from the Labor government in 2024, that is, measures that won’t exactly have SMSF trustees dancing in the streets.''