Industry funds want no gaming of $3m super cap
Industry superannuation funds have signalled the Government they believe it should close of avenues via which people might seek to ‘game’ its proposed new $3 million superannuation concessions cap.
With the $3 million cap ear-marked to be a key inclusion in the May Budget, the Australian Institute of Superannuation Trustees (AIST) has backed the move while urging that measures be put in place to prevent people divesting assets to avoid exposure.
The industry funds group made clear it was opposed to the Government introducing a new early release provision that might assist in divestment.
“AIST understands that the Government does not intend to introduce a new early release provision to permit members aged under their preservation age to divest assets to bring them below the TSB limit and thereby avoid paying the additional tax,” the AIST said in a submission to Treasury.
“AIST agrees this is an appropriate position for the Government to take as such a provision could otherwise be used to cash out additional amounts in any balance growth year, in effect providing a new avenue to draw a pre-retirement income stream from a concessionally taxed investment.”
“While some may draw parallels with the implementation of the Transfer Balance Cap, wherein members with amounts above the cap were provided with a transitional ability to remove excess amounts above the cap, the affected accounts were already in retirement phase and as such open to lump sum withdrawals,” the submission said.
“Further, the Transfer Balance Cap applies only at the point of transfer – once transferred, it has no bearing on the amount of earnings that could push the balance amount above the cap.”
The AIST said its approach in opposing the introduction of an early release provision was justified because “members aged above their preservation age who wish to restructure their tax affairs to not be subject to the new tax, principally by withdrawing super to below the $3 million cap, are able to do so under existing release conditions”.
I’m a little conflicted about this approach. On the one hand, I agree that any money put aside for retirement should not be accessed early. However on the other hand, these members invested their money in the retirement system based on the rules at the time that the tax rates were capped at 15%.
While it is true that those over preservation age can make any adjustments they like to their balance to ensure they don’t get caught up in this, I do think that it is plausible to provide a one-off divesting exemption for anyone under preservation age that will be caught in this new legislation for a large period of time before reaching preservation age. There would obviously need to be considerations around amounts, age, and tax implications which are above my pay grade.
Constant changes to the superannuation rules are harmful to the goal of Australian’s actively saving for their retirement. In my opinion, if we don’t allow one-off adjustments when new rules are introduced, then the confidence of the Australian public to lock away their retirement savings for decades will be further reduced.
What percentage of people with over $3m in super are able to meet a condition of release now, anyway? My guess is a large portion will be able to take the money out of super anyway, if I assume its the older members who were able to accumulate $3m.
Laughable AIST/ISA criticising anyone about ‘gaming the system’!!