Tag: certainty

Australian Financial Review

9 August 2016

Jennifer Hewett

Scott Morrison refuses to concede that the decision to backdate the lifetime limit on non-concessional superannuation contributions to 2007 is anathema to Liberal philosophy.

Scott Morrison doesn’t do reverse easily, if ever. The Treasurer’s approach to politics may not be the same as Paul Keating’s famous description of his own style – “downhill, one ski, no poles”. But when Morrison’s focused on his target, he doesn’t really contemplate changing course – or even creating an effective diversion.

Right now that target is achieving even the most modest claim to maintaining fiscal discipline any way he can, but most certainly including curbing superannuation tax concessions.

So despite the extreme level of agitation in his own party about his proposed superannuation changes – including rather pointed advice on super from other predecessors like Peter Costello – Morrison’s not sounding as if he has any intention of making substantive concessions to even the most passionate of criticisms.

Instead, he is holding firm to this view despite an increasingly heavy personal political cost to his own standing within the party and the very real potential that his judgment may be overturned by colleagues.

It’s true the draft legislation is now likely to grant certain exemptions from the proposed $500,000 lifetime cap on non-concessional super contributions in case of special events like compensation payouts or divorce settlements.
Concept of fairness

But Morrison is still not conceding the key and savage complaint of the party membership and many of his own colleagues, including some very senior ones.

This is that the decision to backdate the lifetime limit on non-concessional superannuation contributions to 2007 is anathema to Liberal philosophy or to any concept of fairness because it is retrospective.

Nor is he in any way inclined to lift the proposed new limit of $1.6 million as the maximum amount that can be allowed to remain in the untaxed pension phase of super. In his view, that limit doesn’t mean that people aren’t still receiving a tax benefit for savings above that amount. They are just no longer getting it tax free.

He is also convinced the budget cannot afford to alter the large announced reductions in the annual limits of super contributions taxed at a 15 per cent concessional rate.

These are now supposed to fall to a maximum of $25,000 a year from the old rates of $30,000 a year and $35,000 for those over 50.

Instead, he keeps insisting that he cannot consistently argue the need for cuts to family tax benefit supplements while simultaneously rejecting any diminution of already generous tax benefits to those who tend to be much wealthier.

He is deaf to the argument that these are the same people who will be entirely or largely self funding their own retirement rather than relying on access to the aged pension.

The Department of Treasury, which has always greatly disliked super concessions, has never accepted this argument either. That’s despite the obvious difficulties in making realistic estimates of how much such reductions in super concessions will eventually add to the taxpayer cost of funding the pension.
Low-risk investments

Now Treasury finally has a Treasurer, and a Liberal one at that, who seems to agree with this logic.

Nor does Morrison accept the position that in an era of abnormally low returns indefinitely, an amount of $1 million or even $1.6 million no longer generates much annual income from the low-risk investments favoured in retirement.

Instead, he maintains he’s telling people who earn a lot less than those able to put $500,000 after tax into super that their family tax supplement has to go in order to pay for child care changes.

“How can I look them in the eye and at the same time say ‘Oh no, I am going to protect this interest over here who are sitting on half a million bucks that they want to load in and stuff in so they can pay less tax on it,” he declared on radio this week.

That’s hardly going to win him votes among existing or aspiring self-funded retirees or the more traditional Liberal voters.

Ironically his biggest supporters of superannuation changes are more to be found within the Labor Party and the industry super funds, especially as he is using half of the supposed $6 billion in super savings over four years to bolster the super accounts of low-income earners.

His own colleagues are far less persuaded about the whole thing but they are most particularly aggrieved on the issue of retrospectivity and the 2007 start date.
Locking in benefits

They were as astounded as the industry was when Morrison unveiled his budget on May 3 and want this measure, at the very least, to only start from that date. Many of them know to their campaign fundraising cost that it harmed their ability to raise money or other support from their usually faithful “base” of strong Coalition backers.

Yet for Morrison, the typical “grandfathering” adopted to assuage those most affected only translates into locking in benefits for those who have already enjoyed advantages.

Given such a depth of feeling and the narrow margin of Coalition numbers, this strict view is going to prove another key test of Morrison’s ability to hold the line. Not to mention his own prospects in the party.

Morrison’s previous popularity with the conservative wing of the Liberals has never really recovered from his role in the demise of Tony Abbott last year. That overwhelmed his earlier hero status as the Immigration minister who finally stopped the boats as promised. As Social Services Minister, he did negotiate through the Senate some significant changes to pension eligibility without attracting much obvious public ire.

As Treasurer, he’s regarded as a big improvement on Joe Hockey. But the doubts remain and the pressure on him can only intensify in an era with no spare money and no spare numbers. Especially on super.

Australian Financial  Review

10 August 2016

Sally Patten

Sharemarket volatility has hit self-managed superannuation fund trustees’ confidence in their ability to select investments.

Self-managed super schemes anticipate they will invest less in blue chip shares and high yielding shares over the next 12 months, but expect to tip more of their savings into professionally managed funds, a survey by research company Investment Trends and fund manager Vanguard found.

The change in investment intentions is linked to self-managed fund members’ pessimistic outlook for equity returns over the next year. The study found that trustees had reduced their return expectations for the local market to 2.8 per cent in March from 6.6 per cent a year ago.

“It is becoming harder for trustees to select investments because of the volatility. They feel they can’t do it as well because of the uncertainty. They feel less confident about doing it themselves,” said Recep III Peker, head of research for wealth management at Investment Trends.

The increased self-doubt is perhaps not a surprise, given that 28 per cent of self-managed funds said that more than half of their portfolios were invested in financial shares, which have performed poorly thanks to rising capital requirements and sluggish economic growth.

In the biggest change in investment intentions since the global financial crisis, 55 per cent of do-it-yourself scheme trustees said they intended to invest in blue chips over the next 12 months, down from 65 per cent who had that intention a year ago. The proportion of fund members who expected to invest in high-yield shares and exchanged traded funds (ETFs) fell to 24 per cent and 18 per cent respectively, down from 32 per cent and 20 per cent.
More bearish

On the other hand, the proportion of funds expecting to invest more in managed funds, including those covering the domestic and offshore markets, rose to 17 per cent from about 14 per cent last time.

“Investors are a bit more bearish than they used to be but they are still thinking about the long term. They want to rely on professionals more. Anyone who gives advice to self-managed funds on the investment side has got a great opportunity right now to benefit from this market volatility,” said Mr Peker.

Mr Peker said it was the first time since 2008-09 that demand for ETFs had fallen, although he said the market remained healthy. Some 90,000 self-managed funds hold ETFs, up from 54,000 in 2014.

Investor nerves about the market were also apparent from the change in their asset allocations over the past year. The weighting of direct shares in self-managed portfolios slipped to 38 per cent in 2016, the lowest level for six years. Cash holdings sat at 25 per cent of the average portfolio, the highest level since 2013.

Self-managed fund trustees, according to the survey, were most worried about a slowdown in China and another global financial crisis. The two issues where concerns rose compared to a year ago were a China slowdown and a rise in Australian debt levels. Investment Trends and Vanguard found that the proportion of self-managed fund members who consider themselves to be ‘self directed’ fell to 42 per cent, down from 54 per cent last time. The proportion of trustees who use an adviser to validate their ideas increased to 48 per cent from 35 per cent.

The Age

8  August 2016

Peter Martin

Scott Morrison’s super warning

It would cost half-a-billion dollars to abandon superannuation changes announced in the budget – and the ratings agencies are unlikely to react well, warns Scott Morrison. Courtesy ABC News 24.

“One of them, if you get a pay-out as a result of an accident or something like that, then that is exempted from the $500,000 cap,” he said. “If you have entered into a contract before budget night to settle on a property asset out of your self-managed super fund and you are using after-tax contributions to settle that contract – well, that won’t be included.”

Other measures would be in the exposure draft of the legislation that would be released shortly.
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Labor says it will oppose the $500,000 lifetime cap if it is found to be retrospective. But its superannuation spokesman, Jim Chalmers, says he will consider supporting it if an independent review finds in its favour.

Mr Morrison said he would be most unlikely to lift the $500,000 limit.

“I don’t know too many people out there who are sitting there with a bag of $500,000, which they want to put in their superannuation fund,” he said. “They are on higher incomes, have higher balances, have already benefited significantly from the generous tax contribution and other concessions, and the argument they are making is: ‘I want to put more in so I don’t have to pay as much tax as someone else is on those earnings’.

“I am saying we should be getting rid of the Family Tax Benefit supplement payments every July, and that is to people who earn a lot less than those who are able to put half a million dollars after tax. How can I look them in the eye and at the same time say: ‘Oh no, I am going to protect this interest over here who is sitting on half a million bucks’.”
Treasurer Scott Morrison says he is prepared to write in exemptions in the superannuation proposals.

Mr Morrison spoke with Senate powerbroker Nick Xenophon and his team in in Adelaide last week and would be meeting with new senators Pauline Hanson and Derryn Hinch. He would impress on them that every savings measure the new Senate rejected would make it harder to retain Australia’s AAA credit rating and get the budget back in to surplus.

“The facts of the Senate are that if Labor and the Greens are blocking government legislation then it only takes the Xenophon Party or the One Nation Party to side with Labor and the Greens and it is blocked,” he said. “Senators will be in a position where they really do have a balance of power. They won’t have the option to say that this is their view and move on.”

The Australian

10 August 2016

Michael Roddan Reporter Melbourne @michaelroddan

Chris Kelaher, managing director of financial services provider IOOF, believes there will be no further government tinkering to the $2 trillion superannuation system after the Turnbull government’s proposed reforms riled sections of the public.Shares in IOOF, which man­ages about $150 billion of client money and super funds, yesterday fell as much as 8.4 per cent in intraday trade despite the company booking a 42 per cent increase in net profit to $196.8 million for the year to the end of June. The bumper result was boosted by the $72m sale of IOOF’s Perennial business, passed off to Henderson Group last year. Stripping out one-off items, underlying profit was steady at $173.4m for the financial year, with revenue flat at $907.9m.Investors were also apparently unimpressed with a deterioration in the profit margin of the IOOF platform business, which fell three basis points to 0.2 per cent over the past six months.The group said in May it expected the gross funds margin to be “materially unchanged”.
“Decline in the platform margin will unlikely be well received, especially in the context of the earnings update in May,” said Credit Suisse analyst Andrew Adams.Despite IOOF emphasising ­future savings in financial 2018, Mr Adams said “investors may have been hoping for something ­sooner”.

While IOOF had positive funds flows of $1.8bn over the year supported by compulsory super contributions, including $1.3bn through its financial advice channels, fund flows to its platforms were somewhat hamstrung by market ructions such as Brexit and a “soggy start to the year”, Mr ­Kelaher said.

“This is a pleasing result in the face of turbulent market conditions,” he said.

Without the contribution from the $670m Shadforth acquisition, which the company bought in 2014, IOOF’s earnings per share would have been about 16 per cent lower year-on-year, according to CLSA analyst Jan van der Schalk.

The takeover delivered $25m in cost savings over the year.

Mr Kelaher said the prospect of further changes to the super system now appeared “negligible” after the government stoked outrage among some wealthy superannuants with the proposals outlined in the budget ahead of the federal election. “There’s not a lot of mileage in fiddling with superannuation,” he told The Australian. “People don’t like it being fiddled with and it tends to be retrospective, so people get agitated — even when there’s no impact on them.

“Our superannuation offering in Australia is one of the best in the world. That shouldn’t give you a natural inclination to go tinkering with the area — you want to leave it alone.”

Mr Kelaher has led IOOF through a series of takeovers including buying Bridges Financial Services, Shadforth, Lonsdale and a majority stake in Ord Minnett, and he said mergers and acquisitions were still “paramount” to the group’s growth strategy.

The group was recently outbid for the $1bn StatePlus financial planning business, but Mr Kelaher said it was regularly approached for deals. “If these opportunities come forward, we are in a position to deal with them,” he said, noting IOOF’s net debt stood at $20m after the Perennial selldown.

Consolidation and divestment of non-core businesses form a large part of the group’s strategy. During the year, IOOF merged $7.1bn of client funds and 40,000 client accounts, in one of the country’s largest platform consolidations, as part of an efficiency bid. Operating costs across the business fell 2 per cent over the year.

The low interest rate environment was also providing a tailwind for the company. “People, particularly retirees, are struggling to survive (amid low rates) so the climate for advice has never been greater, and the advice is often technical advice. It’s positive for the company,” Mr Kelaher said.

IOOF will pay a 26c final dividend, bringing the year’s total payout to 54.5c, ahead of the previous year’s 53c distribution and a company record.

Herald Sun

8 August 2016

Annika Smethurst – National Politics Reporter

AUSTRALIA’S triple-A credit rating will be downgraded if the Turnbull Government can’t manage its “wafer thin” majority and pass budget savings measures, former treasurer Peter Costello says.

The stern warning comes as former cabinet minister Eric Abetz hit out at Prime Minister Malcolm Turnbull over the Coalition’s superannuation policy and his failure to promote conservatives, such as former PM Tony Abbott, to the frontbench.

Mr Abbott said while he won’t return as party leader, he wants to influence the future direction of the Liberal Party over the next three years to try to “crystallise and clarify where centre-right politics in this country goes”.

Speaking to the ABC TV’s Four Corners program, Senator Abetz issued his own warning to senior Government MPs saying: “it will only take one person or two in the House of Representatives to cross the floor to defeat Government legislation.”

“If we keep going full steam ahead and pretend that nothing happened on the Second of July … we will be going to an electoral disaster in 2019.”

The conservative Senator is leading a push within the Coalition to change the Government’s superannuation policy which targets generous tax breaks.

With one member of the Coalition — conservative Queensland MP George Christensen — already threatening to cross the floor if policy isn’t changed, former treasurer Peter Costello said Mr Turnbull will be “beholden” to his backbench.

Mr Costello — who was treasurer under former prime minister John Howard — said it will be an “alluring prospect” for Coalition MPs to sit on the crossbench.

“This is the risk on any particular issue at any particular time, not that these people will cross the floor, but they’ll threaten to go independent.”

He said the Government’s one-seat majority has rattled ratings agencies who now believe the chances for budget repair have declined.

“Will we make any progress on our budget deficit? Will we be able to reduce debt? If we’re not able to do that, if the political situation stops us from doing that, that’s the time we’ll get a downgrade,” the former treasurer warned.

During the one hour program which examined the challenges facing the Coalition, former PM Tony Abbott also called for reform within the NSW Liberal Party saying lobbyists are acting as powerbrokers and creating “a potential for corruption”.

The Australian

9 August 2016

Judith Sloan Contributing Economics Editor

Government’s superannuation package is a mess.

The superannuation package Scott Morrison announced in this year’s budget is turning into a complete shemozzle.

The Liberal Party’s membership is in revolt — that is, among those members who haven’t already resigned.

There is a widespread sense of betrayal. There are also some specific criticisms about the package: it’s over-engineered , unworkable, unfair and the figures are wrong.

The real reason Malcolm Turnbull knocked back Kevin Rudd had nothing to do with Rudd’s poor interpersonal skills but rather Turnbull’s realisation that his party base would go into complete meltdown had he supported the former prime minister’s candidacy for the position of UN secretary-general .

Turnbull and Morrison probably now realise they have been played for mugs by the bureaucrats in Treasury and Prime Minister and Cabinet who have long held the ambition to unwind what they see as the unjustifiable superannuation tax concessions.

You have only to check out the highly erroneous but enormous values put on these concessions, as presented in the annual tax expenditure statement released by Treasury, to pick up the agenda that the activist bureaucrats have been running.

We also know that in 2014 Treasury advised Joe Hockey as treasurer to ditch the tax-free status of superannuation pension income and to impose much higher taxation on contributions using marginal tax rates minus a rebate, even though this latter piece of advice was essentially unworkable. Hockey had the sense to reject the advice.

We also should not overlook the fact, to a man and a woman, the senior officials advising the government on superannuation matters will receive unimaginably generous defined benefit superannuation payments on retirement (more than half of their final salary ) that are barely affected by the budget measures. Note the salaries of these senior public servants have been jacked up significantly in recent years and that their personal financial contributions to superannuation while working are trivial.

No need to save up, pay tax and make non-concessional contributions for this lot.

And if any of them die before their spouse or partner, then a two-thirds pension is paid to the surviving spouse or partner until that person dies.

For them, paying a few thousand dollars more tax each year on their (indexed) retirement incomes is just chicken feed compared with the impact of the superannuation measures on those who have accumulated superannuation balances in good faith under the rules that applied at the time.

That stuff about “commensurate measures” the Treasurer was going on about at budget time was just a ruse.

Here’s an idea. Why don’t these senior officials agree to forgo the benefits of the defined benefit scheme and instead be given an account of, say, $1.6 million to be used to generate a retirement pension? Any residual amount would be returned to the commonwealth when they die. After all, the Treasurer thinks the income generated from a fund of this size is perfectly adequate.

The core problem now for Turnbull and Morrison (and we can throw in Finance Minister Mathias Cormann and Revenue and Financial Services Minister Kelly O’Dwyer ) is how they can construct a more palatable superannuation package without completely undermining their own leadership.

But we shouldn’t think a nip here and tuck there will cut it. There has to be a fundamental rethinking of some of the measures, including ditching some of them altogether. The backdating of the lifetime cap on non-concessional contributions has to go, for instance .

But the real issue is this: as long as there is a cap on the final taxfree superannuation balance, there is really no need for many of the other measures. After all, people have paid the full whack of tax on non-concessional contributions , so why would we want to restrict them?

And talking of the cap, $1.6m is the wrong figure given the low rates of return retirees can expect and the longevity risk that they bear. Had the old reasonable benefit limit remained in place, it presently would be $2.5m. So this is the sort of figure the government should be considering.

But there is an even more fundamental problem with the cackhanded budget measures.

With all the restrictions in place, including the unrealistic figure of $25,000 on annual concessional contributions, most people won’t be able to get to the maximum balance that the government regards as being worthy of tax-free status.

By and large, people are able to save seriously for their retirement only when their mortgage is paid off or is relatively low and the kids are off their hands. But the government’s one-size-fits-all measures simply fail to acknowledge this lifetime pattern.

The real worry for our fiscal future — Turnbull and Morrison will be long gone — is that the combination of the restrictions being contemplated will mean that many people just give up on the dream of self-providing for their retirement and instead plan to rely on the age pension, full or part.

If there is any spare money in the meantime you may as well invest in buying a better home or upgrading your present one — Morrison doesn’t seem to object to this form of estate planning. It’s only superannuation that is an evil form of estate planning, even though non-dependent beneficiaries pay 15 per cent tax on inherited superannuation.

Another big hint for the government that it has seriously messed up is the endorsement of the measures by journalists and commentators working for leftwing media outlets, including the ABC.

Any sane Liberal treasurer would be aghast at the degree of backslapping from people who wouldn’t vote for the Coalition if their lives depended on it.

And what a bad look it would be if the Turnbull government were to rely on Labor or, worse, the Greens to secure the passage of the superannuation measures through the Senate.

The Labor parliamentary leadership group just couldn’t believe its luck when Morrison announced the superannuation measures on that fateful night in May.

Opposition Treasury spokesman Chris Bowen never thought he could go that far and get away with it, politically speaking.

Now Labor will seek to wave through most of the measures in the knowledge that it will be Turnbull and Morrison who will be politically damaged. And in the meantime the champagne corks will be popping in the boardrooms of the union-controlled industry super funds.

Does it get any better than this for Labor? Does it get any worse for the Liberal Party?

Turnbull and Morrison probably now realise they have been played for mugs.