Best interests may preclude advisers recommending super

Financial advisers may no longer be able to recommend superannuation as the best vehicle for saving for retirement because of the Government’s proposed changes surrounding its $3 million superannuation cap.

The Financial Advice Association of Australia (FAAA) has told the Treasury that financial advisers will be compelled to act in clients’ best interests and that a comparison of alternatives will likely suggest that superannuation is not their best option.

The FAAA compared superannuation with other vehicles including discretionary trusts and company structures and noted the complications which often surrounded superannuation.

“Financial planners must provide advice that is in the best interest of their client, including consideration of the best vehicle for saving for retirement to minimise the need for the age pension. This is also in the government’s interest,” the FAAA said.

“Superannuation may no longer be the best vehicle for some Australians, or at least not to the extent that their balance is over $3 million.”

“As the impact of the proposed new tax may require some Australians to exit the superannuation system, people should have the opportunity to restructure their arrangements,” the FAAA said.

“In order to enable impacted members to reduce the balance of their superannuation accounts, we suggest changes to the preservation rules to allow individuals to withdraw excess funds from the super system.

“As the withdrawal of funds from super may depend upon selling business assets, the suggested changes to the preservation rules should permit withdrawals to be completed as a one-off or in stages and at any point in time in the future.”

The FAAA repeated its point that if the $3 million superannuation threshold was not proposed to be indexed, far more individuals were likely to be subject to the proposed earnings tax in a highly inflationary environment.

“The proposed tax increase will not just target the ‘super wealthy’,” the submission said.

“As the superannuation system matures, the proposed new tax will hit the retirement savings of more and more hard-working Australians. This will undermine support for superannuation and strategies designed to maximise super balances, such as salary sacrificing. Therefore, it is critical to ensure the settings of the Better Targeted Super Concessions are appropriate and in line with the intent of the measure, and work within the complex tax and superannuation system while minimising unreasonable unintended consequences for superannuation members.”