Category: Save Our Super Articles

SMSF Association lambasts proposed earnings calculation

19 April 2023


SMSF Association Submission – Better Targeted Superannuation Concessions: Consultation Paper

17 April 2023


Better targeted superannuation concessions:  consultation paper

Comments by Terrence O’Brien, 17 April 2023


Legislating the objective of superannuation: Consultation paper, 20 February 2023

Comments by Terrence O’Brien, 31 March 2023


A Stronger And Cleaner Economy, Powered By Super

3 November 2021



It’s always a pleasure to be invited to address this Trustees Forum, something I’ve done most years now I think since about 2015. I’m grateful for that and for the opportunity to work closely with you, and for your work with Stephen Jones and our economic team.

Today I want to talk about climate change. But this gathering being so close to the election also gives us a good opportunity to first take stock of where we’ve been more broadly, and where we’re headed. The story of our economy and our super sector are so deeply intertwined over the last decade or so and will be even more so into the future.

Even though super played such an integral role in helping see Australia through the Global Financial Crisis, the Liberals upon coming to government froze the Super Guarantee.

When that freeze was followed by weaker wages growth, and when Australian GDP growth over the past eight years was the most tepid since the 1930s, driven in part by weak investment, the Liberals have still spent much of their time in office attacking super.

Last year, during our first recession in 30 years, they came after super with an early access scheme that bled $36 billion from super balances. And they had a good, long look at another freeze to the SG as well. My point is that at every juncture, the answer to every question, every challenge presented to this government in the economy, has been to blame and attack and diminish super.

This is partly out of envy at Labor’s creation, partly because it’s a partnership model bringing workers, unions and business together, but mostly out of blind, ideological recklessness. What makes this especially dangerous is that we need to get everything right if we are to avoid the future painted by the Treasury’s Intergenerational Report – which forecasts an economy smaller, slower, older, more stagnant over the next forty years than the last forty.

The Next Election is a Referendum on Super So that’s the context. I want to pay tribute to all of you, Scott Connolly and the ACTU, funds and peak groups – everyone who has mostly held these attacks at bay. Securing the legislated increases to the super guarantee this year was a fight we shouldn’t have had to have, but a win worth celebrating. We have won more battles than we’ve lost. And occasionally, even, a policy win – like the legislation introduced last week to remove the $450 minimum threshold for the super guarantee, which we have long supported and took to the last election as policy.

We thank you for championing this policy to protect and support those who would likely suffer the most from the falling living standards that have become a consequence of this Government’s failings – especially when it comes to low-paid working women. But you and I know, we’ve been around long enough to understand, that any victory is just another stay of execution. There’s always another attack just around the corner.

That’s why this next election is about super. It’s a referendum on whether super should be central, or sidelined. Built up or torn down. Because retirement incomes are never safe from a government in which the extremist anti-super tail wags this lightweight Treasurer. Not safe from the stagnant wages this government has said is a ‘deliberate design feature’ of its economic policies – remembering wage stagnation has a devastating impact on super balances as well.

So if the Coalition is re-elected: there’ll be more attacks on super; more attacks on wages; more attacks on Medicare; more attacks on living standards; and more attacks on the working families of middle Australia. That’s the risk attached to an eight-year-old government asking for another three years.

Super is a Solution, Not the Problem
Any objective observer knows super has been our big advantage; our economy’s saving grace. During the GFC, around 150 Australian businesses were able to secure almost $120 billion in new equity to support their growth – and almost half of that came from the super sector.

Despite the past 8 years of otherwise weak investment, super has remained a vital source of funding for our businesses and projects. In June this year, 13 per cent of APRA-regulated superannuation funds was allocated to property and infrastructure investments. That is more than $280 billion to support our fast-growing cities, suburbs and regions.
During COVID, super funds provided billions of dollars in recapitalisation and critical business credit and loans to Australian companies and private businesses, helping to absorb the economic shocks. This put downward pressure on the cost of capital for businesses, sandbagged the national economy, saving local jobs, and generated value for fund members.

Over the 12 months to June 2021, there was almost a 15 per cent increase in total superannuation assets. And in the future, Australian super assets are set to grow from $3.3 trillion today to around $34 trillion by 2060, which means from 157 per cent to 244 per cent of Australian GDP. Anyone who looks at the magnitude of this opportunity and wants to wind it back has got rocks in their head. Why would we undermine this source of business investment, dignity and
spending in retirement, and sustainable long-term growth? In 2020, Australia had the third largest pool of pension assets in the world as a proportion of GDP, ahead of the US and UK – and the fourth or fifth biggest overall.

Over the past 20 years, Australia has experienced the greatest asset growth of any pension market, growing by 11.3 per cent. Critical to this growth has been the compulsory and near-universal nature of the Super Guarantee. It means around a fifth of ASX capitalisation is currently owned by APRAregulated funds. So much more would be possible with a government which sees super at this magnitude as part of the solution to our economic challenges and not
the problem.

Super and Climate Change
Today I want to talk specifically about the opportunities for super in cleaner and cheaper energy and the clean economy more broadly. We know that you invest for the long-term and that means you have a fundamental role to play here. Your primary duty is to invest in your members’ best financial interests. And their best financial interests are served by investing in business and assets that will still be profitable thirty years from now.

This means you are acutely aware of the material financial risk that climate change poses today, and over the decades to come. The RBA, ASIC and APRA all share your views. We know climate change poses a risk to the entire financial system.
Just last month the RBA warned that international investors are increasingly adjusting their portfolios in response to climate risks and that Australia risks facing increasingly higher costs in relation to emissionsintensive activities. So we have no more time to waste.

It’s pleasing to see super playing a role in climate action, particularly the industry funds. We welcome every investment in renewable projects from super, as a much-needed source of capital. We have super funds to thank for investment in WA’s largest operational windfarm, in Melbourne Airport’s recently completed onsite solar farm, and in Ausgrid’s community battery project.

More Transparency on Targets and Plans
We also know that behind the scenes, super funds have had a strong record of engaging with the companies they invest in to ensure greater transparency and accountability.

You’re making a difference. The Australian Council of Superannuation Investors has played a leading role in highlighting which companies have committed to net zero emissions and have established targets and plans to get them there. This year, the number of net-zero commitments more than tripled and now almost half of the ASX 200 has set emissions-reduction targets. This is being driven because investors, particularly the industry super sector, are demanding it. In April 2020, IFM supported shareholder resolutions that Santos and Woodside, two of Australia’s largest oil and gas producers, set short, medium and long-term targets in line with the Paris Agreement. At the end of last year, Santos announced new emissions targets, to reduce their emissions by 26-30 per cent by 2030, and to net-zero by 2040.

But despite your best efforts, we know that there’s only so much that you can do in relation to climate risk disclosure when the existing reporting framework is insufficient, inconsistent and inadequate. We agree that regulators and government should provide clearer guidance on this and what companies should be reporting – and we’ll have more to say about it. Like the RBA, we’d like to see disclosures that are usable, credible and comparable, so that there is a baseline, all around the world, that we can measure against. This will help investors make informed decisions.

Last night, the RBA’s Guy Debelle, who has been leading a lot of this work, explained that the Task Force of Climate Related Financial Disclosures (TCFDs) has got a much more detailed, usable, updated guide to disclosure that is going to be the released as part of COP26. This is likely to emerge as the standard that most countries and companies start adopting – and that’s a good thing.

Policy Uncertainty is a Handbrake on Investment
But a lack of consistent and transparent information is only part of the story. Eight years of Coalition policy uncertainty has been a handbrake on super investment in cleaner and cheaper energy. Funds cannot invest with confidence when a government cycles through 22 different plans in 8 years – the last one little more than a pamphlet. Policy uncertainty pushes up the price of finance. That pushes up the price of new projects and technology. It slows the transition. It also means super funds are increasingly needing to look offshore. So we desperately need policy stability, and clear and ambitious targets, which create certainty for super investments to follow.

Economic modelling for IGCC has shown that Australia would create $63 billion in fresh investment opportunities over the next five years by strengthening climate targets and policies in line with reaching net zero emissions by mid-century. And stronger 2030 policies can unlock $131 billion investment in clean industries and new jobs by the end of the decade.
The biggest impediment to tens of billions of dollars of investment in cleaner and cheaper energy is a Prime Minister who can’t get his head around the opportunities here and whose heart isn’t in it. So many missed opportunities to create real jobs, and real investment, in regional communities and economies. Action and leadership that we know won’t cost jobs but will create them. We know the market is there for renewable energy investments in Australia because it has been growing all around the world. And yet, we’ve been bucking the global trend. Australia is losing another race it should be winning.

S&P Global analysis indicates a passive investment in the ASX200 exposes investors to around twice the carbon exposure per dollar invested than in other major markets. Large investment funds report that if they invest in Australia at all, they
spend around 2-3 times as much capital in projects in the EU, USA and Asia than they do on Australian projects.

But these are the numbers that really stood out for me:
A recent survey of Australian investors managing $1.3 trillion found that 70 per cent of them highlighted policy uncertainty as a key barrier to investment, up from 40 per cent last year. This month, HESTA CEO Debby Blakely said, ‘while we want to invest more here, for every $1 we have invested in Australian renewables, we have $3 committed to equivalent assets overseas. The assets are in countries that provide stable, predictable policy settings, which have
given us the confidence to make long-term investments’.

The BCA also identified “policy certainty” as a key factor currently missing in Australia’s energy investment landscape.
This is a devastating vote of no confidence in Scott Morrison and Josh Frydenberg and the wasted decade of missed opportunities the Coalition has presided over.

Super Can Be Central
I know you all understand this. You know that more investment in cleaner and cheaper energy means more opportunities for more people in more parts of Australia. We need a government that understands this too. That won’t be a fourth term Coalition government led by Scott Morrison and Barnaby Joyce. A first term Albanese government would understand and unlock these opportunities.

We know super belongs at the very centre of the recovery. And that this is a key part to ensuring our economy is stronger and our energy cheaper and cleaner after COVID than it was before.

Politicians don’t want to meddle with super

Australian Financial Review

28 March 2022

Chanticleer – Tony Boyd

Superannuation was once a soft target for politicians trying to raise revenue. They have backed off in the face of changed community perceptions and super’s status as a sacrosanct saving vehicle.

It says a lot about superannuation’s changed perception in the community that politicians no longer see it as a soft target for boosting revenue.

There was a time when the Liberal-Nationals Coalition was willing to waste political capital on opposing the move to a Super Guarantee charge of 12 per cent.

Not any more.

In fact, the Minister for Superannuation, Jane Hume, tells Chanticleer in the clearest terms possible that “there will be no increase in super taxes under a Coalition government”.

“There will be no sneak tax increases via by making it more difficult to put money into super under a Coalition government,” she says.

With an eye to potentially wedging Labor over the policies it took to the last election, Hume says there will be no adverse changes to super taxes, no adverse changes to contribution limits, and definitely no changes to the government’s contribution flexibility measures.

She says there will be no changes to catch-up contributions and concessions for a couple downsizing to a smaller house to put an extra $300,000 into super.

The Coalition will not meddle with the ability of retirees up to the age of 74 to make contributions without meeting the work test.

Also, Hume says there will be no adverse changes to the Division 293 tax threshold, which imposes a $250,000 upper limit before the 15 per cent contribution tax comes into play.

Whenever Opposition Leader Anthony Albanese has been asked about Labor’s previous tax policies, he has responded with the phrase: “It is not our policy until we announce it.”

Opposition treasury spokesman Jim Chalmers tells Chanticleer: “We’ve said consistently that we won’t take the same policy agenda to this election that we took to the last election.

“All of our policies will be clearly set out before the election.”

But that is not a denial. It is pretty clear that a decision is yet to be made on these issues, which could potentially boost Labor’s revenue by multiple billions of dollars.

Doing nothing

With about six weeks to go before the election, there is still time for Hume to wedge Albanese and Chalmers, but that pressure is most likely to be greeted with a commitment by Labor to do nothing.

Super’s ascension to a position beyond the reach of politicians seeking revenue matches changing community attitudes, which are well summed up in research by CT Group.

The research, which was commissioned by the Association of Superannuation Funds of Australia, found that super was not on the issue agenda for the vast majority of Australians.

“Australians believe that more money should be saved for their retirement, not less,” the research found.

Although many are concerned they might not have enough money saved to live well when they retire, they are also concerned that others who don’t save might become a burden on taxpayers.

Australians are happy with the performance of their super funds and there is strong support for not allowing early access to super across the full spectrum of different demographic, socio-economic and voter groups.

“The industry is viewed highly favourably, and Australians are satisfied with how the industry is performing across a range of key metrics,” the research found.

“There is high support for maintaining the legislated increase in the Super Guarantee to 12 per cent, and high support for ensuring that any additional super contributions are taken as compulsory retirement savings.”

Implications of the Retirement Income Review: Public advocacy of private profligacy?

17 March 2021

Terrence O’Brien

Download the Analysis Paper (AP19) as a PDF

The recent Retirement Income Review (RIR) implies policies that would reduce after-tax returns to super saving, encourage faster spending of life savings and of equity in the family home, and minimise bequests.  Its approach would incline each generation towards consuming more fully its own lifetime savings.

This paper demonstrates the RIR relies on contested Treasury ‘tax expenditure’ estimates that use a hypothetical benchmark that is biased against all saving, but particularly against long-term saving.

The AP reports that the effective tax rate on superannuation earnings is already much higher than the statutory rate. It also presents credible alternative Treasury measures that use a neutral benchmark. These estimate ‘tax expenditures’ that are only one-fifth the size the RIR claims, essentially flat over time rather than rising strongly, and thus do not unduly favour self-funded retirees compared to Age Pensioners.

The RIR implies policies should encourage faster and more complete consumption of superannuation capital and housing equity in retirement to prevent some retirees’ wealth rising and ending in bequests.  But with savers’ equity in their houses typically about double their savings in superannuation, no prudent acceleration of super spending is likely to overtake inflation of housing prices in an era of fiscal and monetary stimulus and asset price inflation.

The RIR proposes that a retirement income of 65-75% of the average of after-tax incomes in the last 10 years of work would be “adequate” for all, and estimates most (except some retiring as renters) are already saving more than enough for such a retirement.  But it would be unwise and unnecessary for government to set its policies to constrain citizens’ choice of the self-funded living standards they want to work and save towards.  Policies to crimp voluntary saving and accelerate retirement spending would create more uncertain retirements and a more fragile economy, more dependent on international lending and investment.

This paper was first published on 17 March 2021 by The Centre for Independent Studies (Analysis Paper 19)

Rising tensions plague some retirees

The Australian Business Review

Robert Gottliebsen – Business Columnist

9 February 2021

Many sectors of Australia’s retirees are now enjoying the prosperity that comes from higher sharemarkets and property markets.

But two groups are encountering new levels of tension. The first are those who own a dwelling but have most of their money in the bank. Their wealth is rising but they are becoming income-poor.

The second agitated group are holders of large superannuation balances who are suddenly being declared by young people as “spongers on the system” and “rent-seekers”.

I have encouraging news for both groups.

As people get older they often embrace more conservative investment policies and the bank deposit content of their portfolio rises. In previous years, bank deposits earned reasonable rates of interest, but today there is not much income difference between depositing your money in a bank and putting it under the bed. Banks are merely offering a safe place to store your money.

And so while the wealth of many Australians is rising with the value of their houses, their non-government pension income is falling. Their bank money hits their government pension entitlement and they have less income when their cost of living is rising faster than the CPI, given the high medical content.

There are a number of home loan products on the market, but one that is not often considered is the “Government Pension Loan Scheme”, which dates back to the Keating era but has fallen into disuse. Only about 3000 people took it up last year.

What the government is prepared to do is lend people starting in their 50s — but especially 70-year-olds and above — amounts of money that are not limited by your assets or income. The loans are secured on real estate, usually the family home. They are delivered fortnightly and the amount that is allowed is capped at 1.5 times the aged pension. The percentage of the value of a house that can be borrowed depends on people’s age. It gets very high in the nineties.

The loans are repaid when the family home is sold. While that does lessen later flexibility, many older people who are reluctant to borrow on their house are living in virtual poverty despite their wealth. A clear weakness in the loan scheme is the interest rate has not been adjusted to today’s world and is still 4.5 per cent, but my guess is that before the year is out it will be reduced.

A large number of people have seen a 10-20 per cent rise in the value of their dwelling in recent times. The government scheme supplements income but it does mean that there is less money for children to inherit. But I think it’s reasonable that some of the wealth that is being created in the housing boom is shifted into older people’s living standards.

Big super balances

The second group are in an entirely different situation.

Over a period of years there has been a switch in attitudes to the large amounts of superannuation held by older people. For a long time superannuation rules encouraged people to invest large sums in superannuation. This ALP and Coalition government policy deliberately created some very large superannuation balances, which are very difficult to achieve under today’s rules. The policy of maximising the amount of money people held in superannuation continued right through the Abbott/ Turnbull Coalition years.

Indeed, one of the most successful policies to retain the large superannuation sums was a Coalition government brainchild to freeze many superannuation plans issued prior to 2006-07, and allow the frozen money to be released via retaining large superannuation balances.

The Coalition’s policy was therefore to encourage people to use their personal money and leave large sums in super. That’s not today’s agenda, so one of the controversies in superannuation is how much people should withdraw in their 60s and 70s.

Current Superannuation Minister Jane Hume thinks that not enough money is being withdrawn and people’s living standards are suffering.

While this is might be true, many people are nervous about the amount of money they will need in their 80s given the rising costs of medicine, etc. And of course people in their 80s and 90s are required to take large sums out of superannuation. The level of under-withdrawal of superannuation money by people under 80 depends on what graph you look at. If all superannuation is counted, including zero balances, it is clear that people do withdraw their money. But if you take out the zero balances then there is a conservative rate of withdrawal in the 60s and 70s.

It’s important for the government to honour its election promises and not make major changes in this area — especially given its recent policies to actively incentivise the retention of large sums in superannuation.

But on an overall community basis, people have the fitness to spend money on travelling and other areas in their 60s and 70s, which they might not have in their 80s and beyond.

Do retirees hoard their superannuation?

Download the article as a PDF

Jim Bonham*

On 22 January 2021, the Australian Financial Review featured a front-page article by John Kehoe and Michael Roddan headed “‘Ever more’ super gets hoarded: Hume”. 1

In the same issue, Jane Hume (Minister for Superannuation, Financial Services, and the Digital Economy) provided an op-ed “Safety nets let frugal retirees spend savings without a super rise”. 2

On 23 January 2021, Kehoe followed up with an article entitled “Push for seniors to dig deep into super nest egg” in which he wrote:

“Superannuation Minister Jane Hume kicked off a national debate about retirement incomes this week …

“She said people needed to be more confident to spend – not hoard – retirement savings to improve living standards throughout their lives …

“The government’s retirement income review led by former Treasury official Mike Callaghan identified that many retirees died with most of their wealth intact and did not run down their super or tap equity in their home, so they might be saving too much”. 3

It is clearly an important national question.  Wealth includes the home and other assets as well as super, but because the regulatory, financial, market, liquidity, and social issues in relation to housing differ so much from those applying to super, this article focusses only on super.

Is it true that retirees hoard their super?  The answer is in three parts:

  1. Yes, in nominal terms, in some cases,
  2. No, in real terms (indexed to wages),
  3. No, when considered as an average across all retirees.

The Minister’s view, as presented in the op-ed2 and reported in the articles mentioned1,3, is rather different, but it is strongly supported by the Retirement Income Review – Final Report (20 November 2020), chaired by Michael Callaghan4 (“RIR Report”).

A couple of quotes give the flavour of the RIR Report’s attitude (page numbers refer to the pdf version4): 

page 23, “Most people die with the bulk of the wealth they had at retirement intact.”

page 56, “The evidence suggests that retirees tend to hold on to their assets … Alternatively they need not have saved as much …”

It seems the way is being paved towards downgrading the level of compulsion applying to super contributions for pre-retirees and tightening the requirements for withdrawal in retirement. Such changes may be damaging to retirees if they are not soundly based on facts and understanding.

The counter-arguments to the claim that super is being hoarded by retirees need to be fleshed out:

  1. Nominal hoarding

Superannuation kept in an allocated pension account, as is typical for retirees, is subject to minimum annual withdrawal limits.  Those rates have been halved for 2019-21 because of Covid-19, but normally they are: 4% below age 65, 5% for ages 65-74, 6% for 75-79, 7% for 80-84, 9% for 85-89, 11% for 90-94 and 14% over 94.

Provided that investment returns can keep up with the minimum withdrawal rates from an allocated pension it is possible, with care, to leave the capital (in nominal dollars) untouched and take only the investment returns as income.

However, this becomes increasingly difficult beyond age 80 as the minimum withdrawal rates increase well beyond 7%, or at much younger ages if investment returns are low.

Hoarding of nominal superannuation capital throughout retirement is therefore possible, but only for those who die early or invest well.

  • Real hoarding

Nominal dollars provide a poor base for comparison across long time periods.  Real values, indexed to wages, relate much better to community living standards.  If the super account maintains its nominal value for 15 years, it will have lost almost half its real value (assuming 4% p.a. long-term wages growth). 

Successfully hoarding real capital between 65 and 74 years of age would require nominal investment returns, net of fees, consistently above 9%.  This is possible during good times, but almost impossible in bad times, and it becomes far harder as the superannuant ages further.

There is a simple reason for that: the minimum drawdown rates are designed to prevent long-term hoarding, whilst enabling those who live a long life to continue to benefit from their savings.

  • Average hoarding

It is easy to trot out simple examples to show that capital can or cannot be preserved in various scenarios.  From a policy point of view, however, what matters is the true average behaviour of all retirees. 

In support of the claim that retirees do not consume their capital, the RIR Report4 cites a paper by Polidano et al 5, and re-plots Fig 2 of that paper as Fig 5A-12 on page 434 (pdf version).  That graph shows average superannuation account values at a point in time, as a function of age, thus neatly dodging the inflation issue. 

At first sight, that graph seems to confirm the hoarding thesis – although some drop-off in account value can be seen for ages in the late 70s.

On page 434 (pdf version), the RIR Report4 states: “Superannuation assets have tended to grow in retirement (Chart 5A-12), instead of declining as would be expected if assets were funding retirement”.

Polidano et al 5 similarly state that they find “little evidence that people, on average, run-down superannuation balances after reaching the preservation age (Figure 2).” 

Both comments support the hoarding hypothesis, but closer inspection reveals that the graph pertains only to the average of non-zero-balance accounts.  In other words, those accounts which have been totally withdrawn have been excluded.

This is an example of “survival bias”.  A similar situation can arise when back-testing share investment criteria against past data, if consideration is limited to companies that are still in business. Ignoring those that have failed can be an expensive mistake.

In the present case, the survival bias may or may not matter, depending on one’s purpose; but when the purpose is to establish that retirees hoard their super, it matters a great deal.

Fortunately, Table 1 of Polidano et al 5 provides valuable additional data: average account balances are listed there both for accounts with non-zero balances, and for all accounts – segregated further by gender.  That allows the survival bias effect to be both quantified and eliminated.  It is substantial: roughly 80% of males are shown as having exhausted their accounts by age 80.

To make the impact of the account survival bias easier to see, Fig A below plots the Alife data from Table 1 in Polidano et al 5, for all accounts and for non-zero-balance accounts. 

A discussion about how fast, if at all, people consume their superannuation in retirement must include all accounts to be meaningful.

As shown in the two solid all-accounts curves in Fig A – blue for males and orange for females – there is a strong and steady fall-off in the average all-accounts value throughout retirement, at least to the early 80s, by which time most or all of the average balance has gone.


The notion that retirees, averaged across the population, hoard their super is thus contradicted by the facts.

That is an important conclusion when considering superannuation policy.

[1]John Kehoe and Michael Roddan, “ ’Ever more’ super gets hoarded: Hume”, The Australian Financial Review, 22 January 2021, pages 1,2

[2] Jane Hume, “Safety nets let frugal retirees spend savings without a super rise”,  The Australian Financial Review, 22 January 2021, page 35

[3] John Kehoe, “Push for seniors to dig deep into super nest-egg”, The Australian Financial review, 23 January 2021, page 2


[5] Polidano, C. et al., 2020. The ATO Longitudinal Information Files (ALife): A New Resource for Retirement Policy Research, Working Paper 2/2020, Canberra: Tax and Transfer Policy Institute, available at .

A final version of that paper, in which some errors are corrected, has been published in The Australian Economic Review, September 2020, vol 53, No 3, pp 429-449.

* Jim Bonham PhD, BSc, Dip Corp Mgt, FRACI is a retired scientist and manager with a professional background which was initially in academic physical chemistry, and subsequently in applied research and development in the paper industry.  He has been running an SMSF since 2003 and has a keen interest in the retirement income system.

25 January 2021


On 28 January 2021 an abridged version of this article was published by SuperGuide (


On 31 January 2021 Senator Jane Hume, Minister for Superannuation was reported as saying, amongst other things, that  “[retirees are] passing away with most of their retirement savings intact” ; see “Hume urges retirees to use super capital, rather than just returns” by Emily Chantiri, Sunday Age,

The Tax Institute Submission | Proportional Indexation of the Personal Transfer Balance Cap

26 August 2020

Senator The Hon Jane Hume
The Assistant Minister for Superannuation, Financial Services and Financial Technology
The Treasury
Langton Cres
Parkes ACT 2600

CC: Robert Jeremenko, Retirement Income Policy Division, The Treasury

By email:

Download PDF

Dear Assistant Minister

Proportional Indexation of the Personal Transfer Balance Cap

The Tax Institute requests the Government to consider the reforms outlined below in relation to Division 294 of the Income Tax Assessment Act 1997 (ITAA 1997) – that is, the transfer balance cap (TBC) provisions.

Division 294 was included as a part of the 2016-17 Federal Budget Superannuation Reforms and introduced a cap on the amount of superannuation benefits an individual could transfer into pension (tax-free retirement) phase. The General TBC was initially set at $1.6 million1 upon commencement from 1 July 2017. The law includes the indexation, in increments of $100,0002, of the TBC in line with movements in the CPI.

Section 294-40 of the ITAA 1997 provides for individuals that have not reached their TBC to access proportional indexation of the TBC in accordance with their unused cap percentage.

The Tax Institute considers that this provision is overly complex and needs to be reformed. In the context of the TBC provisions, The Tax Institute submits that simpler rules would:

  • Assist members and their advisers to better understand and manage the TBC; and
  • Reduce the cost for both industry participants and the ATO in relation to administering these provisions.

The Institute submits that the removal of proportional indexation will achieve both of these objectives. Accordingly, the Institute’s submission is as follows:

  • Abolish proportional indexation of the Personal TBC and adopt standardised indexation in line with movements in the General TBC for individuals that have not maximised their Personal TBC prior to the indexation; or
  • If proportional indexation is retained:
    • it should be limited, or its application better targeted to individuals that are within close proximity of the General TBC; and
    • a permanent relief mechanism should be introduced to allow the Commissioner to disregard inadvertent and small breaches of the Personal TBC and not penalise individuals in cases where the excess transfer balance amount is removed within a specified period of time. There is a precedent that was included in the enabling legislation whereby TBC breaches of less than $100,000 were able to be rectified within 6 months (of the commencement of the legislation) and the breaches would not give rise to the application of notional earnings or an excess transfer balance tax liability3. We suggest adopting this transitional rule permanently (with some modification if required).

The requested reforms have been developed by The Tax Institute’s National Superannuation Technical Committee and are detailed in Annexure A for your consideration.

* * * * *

If you would like to discuss, please contact either me or Tax Counsel, Angie Ananda, on 02 8223 0050.

Yours faithfully,

Peter Godber




Part of the 2016-17 Federal Budget superannuation reforms introduced (from 1 July 2017) a lifetime cap on the amount of accumulated superannuation an individual could transfer into pension (tax-free retirement) phase. The General Transfer Balance Cap (TBC) was initially set at $1.6 million4.

Apart from some specific circumstances prescribed in the law, amounts in excess of the TBC must be withdrawn out of pension phase. The excess amounts could remain either in the accumulation phase with associated earnings taxed at 15 per cent or completely transferred out of the superannuation system. Notably, the General TBC would be indexed and allowed to grow in line with the CPI, in increments of $100,0005.

In addition, a Personal TBC was introduced within the enabling legislation6 which is generally equal to the General TBC applicable at the time when an individual makes their first transfer of capital to a retirement phase income stream.

The ATO administers individual compliance with the TBC via a Transfer Balance Account (TBA).

Proportional indexation

Section 294-40 of the ITAA 1997 provides for proportional indexation of the TBC to allow individuals to benefit from increases in the General TBC where they have not fully expired their entitlement to their Personal TBC.

The structure of proportional indexation, over time, results in individuals having a Personal TBC that differs from the General TBC relative to the time they commence a retirement phase income stream.

Complexity is further added as an individual can only obtain a proportion of each General TBC indexation increase (that is, $100,000), based on their Unused Cap Percentage (UCP).

The UCP applies only if the individual has not fully utilised their Personal TBC and is determined by identifying the individual’s highest TBA balance at the end of a day, at an earlier point in time, and comparing it to their Personal TBC on that day. The UPC is expressed as a percentage and applied against the indexation available for the General TBC. This process is required at each indexation point until such time as the individual utilises 100% of their Cap Space.

Once an individual has used their entire available Cap Space, their Personal TBC is not subject to further indexation, even if they later commute some or all of that pension to bring their TBA balance below their Personal TBC.

This is best illustrated with the following examples (adapted from the Explanatory Memorandum)7:

Example – simple

Danika first commenced an $800,000 retirement phase income stream on 18 November 2017. A Transfer Balance Account is created for her at this time. Her Personal TBC was $1.6m for 2017-18. As Danika had not made any other transfers to her retirement phase account, her highest TBA balance is $800,000. She has used 50% of her $1.6m Personal TBC.

Assuming the General TBC is indexed to $1.7m in 2020-21, Danika’s Personal TBC is increased proportionally to $1.65m. That is, Danika’s Personal TBC is only increased by the UCP of 50% of the $100,000 indexation increase to the General TBC. As such, Danika can now transfer a further $850,000 to commence a retirement phase income stream without breaching her Personal TBC. Notably, earnings on the original $800,000 were not taken into account in working out how much of the unused cap was available.

Example – complex

On 1 October 2017, Nina commenced a retirement phase income stream with a value of $1.2m. On 1 January 2018, Nina partially commuted $400,000 from this income stream to buy an investment property.

Nina’s TBA balance on 1 October 2017 was $1.2m and on 1 January 2018, it was $800,000 (after the $400,000 partial commutation).

In 2020-21, assume the General TBC is indexed to $1.7m. To work out the amount by which Nina’s Personal TBC is indexed, it is necessary to identify the day on which her TBA balance was at its highest. In this case, the highest balance was $1.2m on 1 October 2017. Nina’s Personal TBC on that date was $1.6m. Therefore, as she has used up 75% of her Personal TBC, Nina’s UCP on 1 October 2017 is 25%.

To work out how much her Personal TBC is to be indexed, Nina’s UCP is applied to the amount by which the General TBC has indexed (i.e. $100,000). Therefore, Nina’s Personal TBC in 2020-21 is $1.625m.

In 2022-23, assume the General TBC is indexed to $1.8m (i.e. by another $100,000). As Nina has not transferred any further amount into the retirement phase, her UCP remains at 25%. Her Personal TBC is now

$1.65m (i.e. 25% of the further indexation increase of $100,000). In this year, Nina decides to transfer the maximum amount she can into the retirement phase.

This will be her Personal TBC for the 2022-23 year ($1.65m) less her TBA balance of $800,000. This means Nina can transfer another $850,000 into the retirement phase without exceeding her Personal TBC.

Once Nina has used all of her available Cap Space, her Personal TBC will not be subject to further indexation. Notably, this is the case even if Nina later partially commutes some of her retirement phase income stream and makes her TBA balance fall below her Personal TBC.

Range of Potential Personal TBC

Members (A to D) Cap Space utilised in 2018 – 2021 (assuming indexation in 2021).

 Personal TBC (Start)YearCap Space AccessedTotal UsedUnused Cap %8Personal TBC (End)Year
C$1,600,0002018$ 700,000$ 700,00057%$1,657,0002021

Members (A to D) Cap Space utilised in 2022 – 2025 (assuming further indexation in 2025).

 Personal TBC (Start)YearCap Space AccessedTotal UsedUnused Cap %Personal TBC (End)Personal TBC Year
B$1,638,0002022$ 500,000$1,500,0009%$1,647,0002025
C$1,657,0002022$ 900,000$1,600,0004%$1,661,0002025

As illustrated above, the amount of proportional indexation largely depends on an individual’s UCP, each time there is indexation of the General TBC.

The result of this process is an individual’s Personal TBC is likely to be unique to themselves if they are in the category where they do not utilise their full TBC at the point of commencing a retirement phase income stream.

The burden is therefore likely to fall to individuals with smaller superannuation balances.

Current Issues and Challenges

Overly complex calculation and too widely targeted

The above examples demonstrate the complexity of the proportional indexation calculation which, over time, will require very effective record management systems to track and be effective in ensuring individuals are not subject to inadvertent breaches of their TBC.

According to the Explanatory Memorandum9 (EM) to the enabling legislation, the introduction of the TBC was to better target superannuation concessions thereby ensuring the system’s sustainability over time. The EM estimated the introduction of the TBC would affect less than one per cent of Australians with a superannuation interest. If this estimate is accurate, then arguably this particular calculation which is carried out on the full population (in retirement phase) represents a very inefficient and costly tax administration for what was meant to only have a one per cent application.

Design not hitting target

By its very nature, proportional indexation essentially rewards and benefits those who are able to defer the commencement of their retirement phase income stream to a later date. As a consequence, it may actually encourage those who are ready to retire (with amounts in excess of the General TBC) to defer and leave their superannuation balance in the accumulation phase until indexation does occur. Such behaviour would appear contrary to the intent and objective of proportional indexation.

Inconsistent treatment with other superannuation caps

The proportional indexation of the Personal TBC is unprecedented when compared with other indexation that takes place under the tax law. For instance, the Low Rate Cap Amount10 which represents a lifetime cap on the tax-free level of superannuation lump sums an individual can receive in their lifetime is indexed in line with AWOTE, in increments of $5,000. There is no proportional reduction based on how much of the previous Low Rate Cap Amount has remained unused.

Too many rates, caps and thresholds

It has taken industry participants and the ATO considerable time and effort to educate individuals on the concept of the TBA (including debits and credits) and the consequences of breaching their Personal TBC. At times, there has even been some confusion with the Total Superannuation Balance (TSB) which has also been pegged to the General TBC for the purposes of assessing eligibility to the following superannuation concessions:

  • Non-concessional contributions caps (NCC) and associated bring forward caps;
  • Government co-contributions;
  • Tax offset for spouse contributions; and
  • Segregated method to determine their earnings tax exemption (SMSFs and small APRA funds only).

We submit that there was a logical nexus and a familiarity developed with the $1.6 million between the General TBC and the TSB (at least for the above mentioned superannuation concessions). However, as proportional indexation comes into effect with an individual potentially having a Personal TBC not equalling the General TBC, The Tax Institute is concerned that the Personal TBC will further exacerbate what is becoming a very complex suite of rates, caps and thresholds operating within the superannuation system.

A lack of consistency has been applied historically across the various caps and eligibility criterion for superannuation concessions. Some caps are indexed based on either CPI or AWOTE whereas others are referenced to a specific date and/or data set.

The non-concessional bring forward non-concessional contributions cap (that allows some individuals to use 3 years of the non-concessional contribution cap in a single year), provides an example of the anomalies apparent in the reference points for access to superannuation concessions.

The bring-forward non-concessional contributions cap is assessed based on an individual’s TSB, with thresholds referencing both the General TBC and the General NCC.

Source: Paragraph 5.47 of the Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016 – Explanatory Memorandum.

Specifically, the references to $1.4 million, $1.5 million and $1.6 million reflect a calculation that takes a multiple of the NCC (originally set at $100,000) and subtracts it from the General TBC11.

Notably the table above gets very complicated and may produce anomalous eligibility thresholds given the indexation of the General TBC is based on CPI and the General NCC on AWOTE. This problem is further exacerbated if, in a given income year, the NCC is indexed but the General TBC is not (due to the higher $100,000 incremental hurdle).

Access difficulties to Personal TBC

Currently, financial planners and advisers have difficulties accessing clients’ TBA and TSB balances given the information is only accessible via the ATO and restricted to the individual and their tax agents.

Without this information, it is extremely difficult for advisers to provide appropriate financial advice which will not cause their clients to inadvertently breach their caps. Unfortunately, we foresee this problem only getting worse if and when proportional indexation comes into effect with an individual’s Personal TBC diverging from the General TBC12. This ultimately affects the quality of the advice provided and may lead to errors, giving rise to complaints and the need to remediate.

Reliance on ATO

Of particular concern is that the Personal TBC determination rests solely with the ATO, who in turn must rely on all Fund providers to report all relevant member’s transactions accurately and in a timely fashion. Any errors or omissions in the reporting may lead to subsequent re-reporting which may trigger a re-calculation of the Personal TBC. However, the individual and/or their financial adviser may have acted and relied upon the ATO’s calculation.

Notably in a recent AAT case13, a taxpayer submitted that they were led into error by misleading content on the ATO website when managing the excess over their Personal TBC. However, the Tribunal found in favour of the ATO and also confirmed that the Tribunal had no jurisdiction to address any application against the ATO even if its website could be said to be misleading This was the case, notwithstanding there was acknowledgement that the taxpayer had relied on the ATO information in good faith and made an honest mistake.

Furthermore, there appears to be no rights to object to any inadvertent breach of the individual’s Personal TBC in such a situation and is a real concern given the fact that the Commissioner does not explicitly have any discretionary powers to disregard an excess transfer balance (even if information obtained from the ATO contributed to the breach).

Culpability for errors or omissions unclear

As alluded to in the previous issue, it may also be unclear as to who is culpable for an inadvertent breach of the cap as a consequence of any error or omission in member reporting. With such a large superannuation system and the volume of transactions that occur, one can expect reporting errors

or omissions to arise from time to time that require re-reporting to the ATO. To the extent re-reporting causes a subsequent breach of the cap and/or denial of any related superannuation concessions, it is unclear who is culpable for that breach. This is particularly the case if the individual has multiple accounts with various Fund providers and there are errors or omissions experienced by more than one Fund provider.

Severe tax consequences for excess transfer balances not rectified

The breaching of the TBC may often lead to an individual disputing their excess transfer balance with the ATO and refusing to commute the excess. Individuals may give explicit instructions to their Fund not to process a commutation authority issued by the ATO. However, Trustees have no choice but to act and process a commutation authority that it receives14. Failure to do so within the prescribed 60 days will result in the income stream ceasing to be a retirement phase income stream15.

This in turn results in the income stream ceasing to qualify for the earnings tax exemption16 with the eligibility deemed to have been lost from the start of the income year in which the commutation authority was not complied with. Notably this tax outcome poses an administrative challenge particularly for large funds that operate retail Master Trusts and offer their members superannuation interests in unitised asset pools. Specifically, it becomes extremely difficult to even determine what portion of the income and gains from the unitised (pension) asset pools is attributable to that particular member. Furthermore, the Trustee would also need to assess the tax character of that income and gains, plus any applicable tax offsets in order to determine the effective earnings tax rate that ought to have been applied to the deemed assessable income.

More importantly, the Trustee’s compliance with a commutation authority may give rise to a complaint by the member for not complying with their explicit instruction or request not to process.

Outcomes and Conclusion

The current superannuation system is overly complex and costly to administer. There is merit in making it much simpler for all stakeholders.

The Tax Institute submits that simpler rules would assist in:

  • Members and their advisers better understanding and managing the TBC; and
  • Reducing the cost for both industry participants and the ATO to administer these rules.

The removal of proportional indexation specifically achieves both these objectives.

As with other existing superannuation caps, adopting the General TBC will ensure every individual has the same TBC regardless of when they entered the retirement phase. This will provide certainty to individuals and their advisers to better plan for their retirement, without having to rely on gaining access to ATO information.

The call for permanent relief for inadvertent and small breaches is aimed at red tape reduction and thereby increasing the overall efficiency of the superannuation system. At present, it can take up to 120 days before an excess transfer balance amount is withdrawn from retirement phase. Any such breaches tend to involve every party within the system and is therefore a very costly and time- consuming exercise. We submit this particular option strikes a good balance between maintaining the integrity and efficiency of the superannuation system. It should also obviate any breaches which may result from any misreporting and re-reporting of member transactions by Fund providers and reduce the number of disputes and complaints raised by the individual against the Trustee and/or the ATO.

Whilst the proportional indexation methodology is designed to target higher member balances, its universal application is more likely to impact superannuation funds with lower balance members. The Tax Institute considers it to be undesirable to significantly increase the complexity inherent in a system that has limited application against the object of the measure. There is still time to remove this provision from Division 294 before the first indexation event occurs and we urge the Government to carefully consider this submission.


1  Subsections 294-35(3) of the ITAA 1997.

Subsection 960-285(7) of the ITAA 1997.

3 Section 294-30 of the IT(TP) Act 1997

4  Subsections 294-35(3) of the ITAA 1997.

Subsection 960-285(7) of the ITAA 1997.

6 Treasury Laws Amendment (Fair and Sustainable Superannuation) Act 2016 [No. 81 of 2016].

7 Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016 – Explanatory Memorandum.

8 Unused cap percentage effectively is rounded up to the nearest per cent as a result of subsection 294-40(2)(c) of the ITAA 1997.

9 Paragraph 3.373 of the Treasury Laws Amendment (Fair and Sustainable Superannuation) Bill 2016 – Explanatory Memorandum.

10 Section 307-345 of the ITAA 1997.

11 Subsections 292-85(2), (3), (4) and (5) of the ITAA 1997.

12 Indexation of the General TBC will first occur (in the following income year) if and when the December quarter CPI figure reaches 116.9.

13 Lacey and Commissioner of Taxation (Taxation) [2019] AATA 4246.

14 Section 136-80 in Schedule 1 to the TAA 1953.

15 Subsection 307-80(4) of the ITAA 1997.

16 Subdivision 295-F of the ITAA 1997.

Click here for The Tax Institute’s original submission published 28 Aug 2020 by THE TAX INSTITUTE


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