SMSF reaction to super law: disappointed and betrayed

Australian Financial Review

25 November 2016

John Wasiliev

Disappointment and a sense of being betrayed are the major reactions of self-managed superannuation fund (SMSF) trustees who find themselves unable to save for the retirement they planned for as a result of the significant changes to super that will apply from next July.

Anyone with super of more than $1.6 million in either savings or a pension account or with aspirations to accumulate such amounts are in this boat.

For trustee Libby Boshell and her husband, who have already accumulated more than $1.6 million after decades of saving, what to do now leaves them with feelings of despair and being targeted for the errors of past governments.

While accountants, financial planners and superannuation experts scramble to come to terms with the reforms and devise ideas and strategies to deal with them, trustees like the Boshells feel disillusioned.

In their own words, they have “carefully followed all the rules, done our homework, and sought to understand the value of long-term savings”.  The changes have left them distrustful about both super and the political system, in particular the Turnbull Coalition government’s approach to it.

With intentions to continue working beyond age 65 and keep saving through super, the Boshells now regard themselves as being “locked out” of making super contributions from July.

While they recognise they can make last-minute contributions under the current rules this financial year, they are frustrated because non-concessional contributions won’t be available to them and super accumulated beyond the pension limit will be taxable when they start pensions.

But their future super involvement is not as radical as SMSF trustees Tom and Cathy*, who say they have exit strategies planned that involve selling investments in their pensions before July while they are still exempt from tax.

They describe reports of trustees selling property in their super ahead of the reforms as being the reverse of the efforts trustees made in 2007 when the Howard government allowed a last-minute $1 million contribution entitlement before introducing its major super reforms.

They also plan to withdraw lump sums from their super while this is still possible because their view is that future super reforms could close off lump sums in favour of purchasing annuities.

They describe the new super rules as a “dog’s breakfast”. For them a key issue is not being able to trust politicians, especially with the prospect of a future Labor government proposing further contribution and tax restrictions.

Also less than complimentary about the new super rules is SMSF trustee Diane*, who describes the new legislation as  “extremely complex and unwieldy”  and which limits the scope for today’s workers to save for a comfortable retirement in an increasingly costly world, especially with regard to healthcare.

Her view on the government is the Liberals have abandoned their support base and as a result have lost many older Australians as voters for the foreseeable future. The older generation, she says, have long memories and have been betrayed.

Super advisers say the changes that will come into effect from next July are the most significant since the Howard reforms a decade ago.

SMSF specialist Meg Heffron of Heffron SMSF Solutions describes them as changes that are likely to completely re-shape super strategies for the next decade for those able to commit more than average levels of contributions to super.

She is surprised how quickly the reforms were approved by Parliament, and the limited time allowed to adapt to the changes to people who will be most affected – those with super accounts of more than $1.6 million.

Especially affected, says Heffron, will be those who have a combination of SMSFs and defined benefit pensions, many of them public servants, where the treatment is “really weird”. Also subjected to strange treatment are pensions often run from SMSFs known as market-linked or term allocated pensions where some unusual income treatment will take a lot of sorting out.

*Anonymity requested