Superannuation reforms could hit half of SMSF trustees

Australian Financial Review

July 28 2016

Sally Patten

Half of all self-managed superannuation fund trustees face a hit from the Coalition’s proposed super reforms, and the controversial plan to limit transfers to a super pension to $1.6 million will hit one in five over the age of 65.

Research by the SMSF Association and actuarial certificate provider Accurium found that 48 per cent of self-managed super fund trustees would have been affected by one or more of the super measures had they been in place in the 2015 financial year.

Since July last year, the median account balance of self-managed super funds that were at least partly in the pension phase rose 3 per cent. This suggests that the number of superannuants who stand to be hit by the reforms will be higher  by July next year when they are scheduled to take effect.

Transferring super into a pension is a common strategy because earnings are tax free so long as regular withdrawals are made.

Concessions unuseable

The research found that 70 per cent of self-managed scheme members who contribute more than $25,000 a year to super will not be able to take advantage of a concession offered by the government allowing savers to carry forward unused pre-tax contribution limits for up to five years.

SMSF Association chief Andrea Slattery said she was working closely with the government “behind the scenes” in an effort to try to amend some of the reforms. She conceded that Treasurer Scott Morrison was likely to proceed with the majority of the proposed changes contained in the May budget. But Ms Slattery argued that reducing non-concessional super contributions limit to $25,000 from $30,000 or $35,000, depending on the savers age, was too drastic.

“We believe there needs to be some re-thinking around the $25,000 cap,” Ms Slattery said. She also expressed concern about the complexity of administering the $1.6 million super pension transfer ceiling.

Even under the current rules, the proportion of couples in self-managed funds who have an 80 per cent chance of being able to afford a comfortable lifestyle in retirement has fallen to 70 per cent from 75 per cent a year ago, the research found. This was blamed on inflation and the dismal outlook for investment returns.

“The deterioration in the global economic outlook has, on average, led to lower investment returns. More capital is needed today with lower expected returns to support the same level of spending over retirement,” the research paper concluded.

The 4.2 per cent median return recorded by self-managed funds operated by older members in the year to June 2015 was considerably less than the 6.2 per cent average return of the previous five years.

The SMSF Association and Accurium found that if a 65-year old couple wanted to lead a comfortable retirement, which would cost $59,000 a year to fund, with a 95 per cent degree of confidence, they would need $1 million in super savings. If a couple wanted the same degree of confidence they could spend $70,000 a year in retirement, they would require $1.5 million in super savings. Self-managed fund trustees typically aimed to spend about $75,000 a year in retirement.