After months of speculation and the subsequent delivery of the Budget, one thing is certain and that is that change is the constant factor when dealing with superannuation. Over the past twelve months, including the recent changes suggested in the Budget, and considering the focus of the ATO regarding self managed superannuation funds in the coming twelve months, change is to be expected, and planned for.

Looking first at the proposed changes in the recent Budget, such changes are testing the patience of ordinary Australians wanting assurances their retirement savings won’t be raided to fund budgetary shortfalls. Initially the budget proposals were supposed to be big revenue earners for the government, designed to help pay for the much-trumpeted Gonski school reforms and the National Disability Insurance Scheme. However, the superannuation reform package has been crafted with the view of not losing too many votes. But the meddling with super and constant speculation hits a raw nerve with all super fund members. Let’s look at some of the suggested budgetary reforms:

The positives:

1. The increase in the concessional contributions caps to $35 000 for those over age 60, and from 1 July 2014 for those aged over 50;
2. The reduction for many super fund members of the excess concessional contributions tax. It is now equal to the members’ marginal tax rates, presumably taking into account the 15% contributions tax; and
3. The establishment of an impartial Council of Super Custodians to oversee any future superannuation changes.

The negatives:

1. The reduction of the tax exemption on pension assets for members earning more than $100 000 a year, including a one-off capital gain that may have been accruing for decades.
2. The change in the aged pension income test for account-based pensions from the current formula, where the purchase price or the amount used to acquire the pension is treated as capital and written off over the member’s life expectancy, to a deemed rate of return on the pension’s value. This will have a significant effect in decades to come and although grandfathered for pensions in place pre-1 January 2015, any transfer of the pension to another fund or change in the terms while in a SMSF will see a new pension commencement and grandfathering lost.

Given these changes though, and the constant meddling or tinkering with the rules around superannuation, self-managed superannuation fund growth continues at around 20% per year, as it has for nearly two decades. SMSF assets are projected to reach $2 trillion by 2030, but will grow considerably higher if there is an increase in the concessional contribution caps. This is a predicted 300% increase in the next 17 years.

Other recent changes in regulations governing SMSFs mean there is added pressure on trustees. In particular, the following three factors need to be considered if you operate a SMSF:

1. Separation of assets – although the requirement to separate assets has always been (and continues to be) a requirement under legislation, the regular occurrence of breaches of this rule has resulted in new regulations making it easier for the ATO to apply penalties. Such regulations require the trustee of an SMSF to keep the assets of the fund separate from any assets that are held by trustees personally.
2. Asset valuations – changes require that all assets must be valued at market value for the 2012/13 year of income, and all subsequent years. Market value must be used when preparing the fund’s accounts and member statements.
3. Regular review of investment strategy – trustees are now required to regularly review a fund’s investment strategy. While regulations have always required trustees to formulate and give effect to an investment strategy, they are now required to ensure the investment strategy is reviewed regularly as well. The change is designed to ensure trustees do not simply set and forget their investment goals but are constantly reviewing them to ensure they remain relevant and appropriate. The biggest change that has come into effect in the 2013 financial year is that SMSF trustees are required to consider whether they should hold insurance policies for the members. While there is no requirement for the fund to obtain insurance cover, the need (or otherwise) must be actively considered and documented for this financial year.

If you are a trustee of a self-managed superannuation fund, you will need to work closely with your accountant/adviser to ensure that your fund meets all new regulations and stays compliant. Even for those who simply hold super, you will still need to stay up-to-date with such changes and the impact such changes have on your retirement benefits.

Change is a constant in superannuation and the new financial year will mean more change for the SMSF industry. Trustees and practitioners must be vigilant and stay educated to ensure the continued success of this sector.

© Power Tynan Pty Ltd