Good morning, it’s great to be with you.
As at September 2018, Australia’s superannuation system had over 15 million members and around $2.8 trillion in assets under management.
This equates to 147 per cent of GDP.
Today, I’m going to give an overview of the Self-Managed Superannuation Fund (SMSF) sector, outline the Morrison Government’s vision for the industry and discuss the risks a Shorten Government would pose to the industry.
As you may have heard the Prime Minister say, if you have a go you’ll get a go. And we not only back those who run SMSFs we want your retirement nest egg to grow.
SMSF overview
Plenty SMSFs are a growing portion of the superannuation industry, with nearly one third of total superannuation assets being held by the sector.
As the Productivity Commission’s recent report into superannuation noted, SMSFs add to the competitive nature of the superannuation industry.
Additionally, SMSFs benefit our broader economy, with the majority of the sector’s assets held by SMSFs being Australian listed shares, cash and term deposits.
The sector is growing, with around 596,000 SMSFs and over 1.1 million SMSF members as of September 2018.
These SMSFs held $755 billion – equating to 27 per cent of total superannuation assets. Average assets per SMSF were almost $1.3 million in September 2018 – an increase of approximately 25 per cent over four years. Over the five years to end of September 2018, growth in the number of SMSFs has averaged around 3 per cent annually.
In 2015-16, 53 per cent of SMSFs had all members in accumulation phase. SMSFs also have higher rates of contributions than other funds with total contributions to the sector increasing by 21 per cent over the five years to 2016, compared to 16 per cent growth in total contributions across all superannuation funds.
Supporting people to make contributions and save for retirement is a key objective of this Government, which is in stark contrast with Labor’s policy.
Current superannuation landscape
The Productivity Commission’s report on competitiveness and efficiency in the superannuation system found the system has served Australians reasonably well but there are significant issues that need to be addressed.
In response to this and the Royal Commission report, we have committed to ensuring that new super members can only be defaulted once.
We have also committed to prohibiting the deduction of advice fees from MySuper accounts.
We have committed to prohibiting hawking for superannuation and insurance, preventing some of the most disturbing stories told during the Royal Commission.
We have also committed to making changes to the sale of add-on insurance products so their sale is separated by a period of time from the sale of the original product.
We have agreed to Commissioner Hayne’s recommendation that the Banking Executive Accountability Regime be extended to insurance and superannuation entities and that ASIC should have joint responsibility with APRA for oversight of the BEAR.
We have also committed to clarifying the regulatory roles and powers of ASIC and APRA with ASIC to become the primary regulator of conduct, and APRA of prudential standards.
Morrison Government’s plan for SMSFs
The Morrison Government wants SMSFs to grow and thrive. Our opponents want to put their hands in your pockets.
SMSFs give people control and flexibility.
To ensure SMSF trustees are supported to make decisions about their own retirement savings, the regulatory settings must be targeted and effective, without unnecessary red tape.
We’re committed to supporting SMSFs so members can retain control over their money, accumulate an adequate balance and enjoy a comfortable retirement. This means ensuring the superannuation regulations are fair and effective.
For these reasons, I announced last October six technical amendments:
- Ensuring an appropriate debit value is given for market-linked pensions that are commuted or rolled over
- Fixing the valuation of defined benefit pensions under the transfer balance cap to reflect when pensions are permanently reduced, ie some reversionary pensions in public sector schemes
- Providing transfer balance cap credits and debits to innovative income stream products that are paid off in instalments
- Fixing the definition of life-expectancy period in relation to innovative income streams to account for days in a leap year
- Ensuring that death benefits that include life insurance proceeds that are rolled over are not subject to tax in the receiving fund
- Maintaining the treatment of market-linked pensions under the transfer balance cap where they have been rolled over as a result of a successor fund transfer.
These small but important measures ensure the law operates fairly and effectively, and doesn’t lead to unfair or unintended outcomes for members.
There remains more to be done.
Increase in membership limit for SMSFs
On 13 February 2019, the Government introduced legislation into Parliament to increase the maximum number of members in SMSFs from four to six. Subject to the passage of legislation, this measure will commence from July 1 2019 and will increase flexibility for joint management of retirement savings, especially for larger families.
Increased consumer choice underpins the Government’s plan for a stronger economy in ensuring all Australians get a fair go, especially in retirement.
This change is widely supported. It provides more flexibility for joint management of retirement savings, in particular for larger families.
SMSFs not only play a valuable role in allowing individuals the choice to exert more control of their own retirement, they also provide a competitive dynamic in the superannuation sector.
SuperStream
To support SMSFs, we’re planning to extend the SuperStream system to SMSF rollovers requested on or after 30 November 2019.
SuperStream is the way businesses must pay employee superannuation guarantee contributions to superannuation funds. With SuperStream, money and data are sent electronically in standard and consistent format between employers, funds, service providers and the ATO.
This contributions and rollovers can be processed faster, more efficiently and with fewer errors.
The ATO is continuing to work with the industry, including SMSFs, ahead of the start date to help ensure a seamless rollover process.
Work Test Exemption
In last year’s Budget, we also announced a one-year exemption from the work test for superannuation contributions to allow recent retirees to boost their balances.
Currently, people aged 65 to 74 must work a minimum of 40 hours during a 30 day period in the financial year in order to keep making voluntary contribution to superannuation. Our exemption provides older Australians additional flexibility to contribute more into superannuation as they move into retirement.
It means from July 1, Australians aged 65 to 74 with a total superannuation balance below $300,000 will be able to make voluntary contributions for 12 months from the end of the financial year in which they last met the work test.
Regulations to give effect to these changes were made last December.
Following feedback from stakeholders during the recent public consultation process, the Government has decided to allow those who use the work test exemption in the year they turn 65 to access bring forward arrangement for non-concessional contributions.
These individuals will be able to make up $300,000 in contributions from after-tax income, providing extra flexibility to get their affairs in order as they prepare for retirement.
This change will also align the contribution rules for the work test exemption with those that apply under the work test, making the system simple to understand for members.
Franking credits
Over 900,000 Australians will be worse off under Labor’s Retiree Tax.
Even excluding pensioners with SMSFs pre-28 March 2018, 200,000 SMSFs containing 365,000 member accounts will lose their refunded franking credits as a result of the policy.
Of the individuals hit by Labor’s tax, 84 per cent have taxable incomes below $37,000 while 96 per cent have taxable incomes below $87,000.
This is both staggering and disturbing.
This is a great attack on those who are saving to be self-reliant in retirement. On Labor’s own numbers it rips $55 billion off Australians and their superannuation funds over 10 years.
I hear regularly from the industry that stability in regulation and taxation is important. The importance of certainty so Australians can plan for their retirement is important to this Government.
Labor’s retiree tax is bad for Australians, and that’s why the Treasurer asked the House of Representatives Standing Committee on Economics to inquire into the implications of removing the refundable franking credits.
I’ve been advised there have been 999 submissions made and the committee is still accepting submissions and holding public hearings.
Chair of the Committee, my colleague Tim Wilson, has said many of the submissions are from “retirees who are concerned they will be forced onto the aged pension if the ability to claim a refund on their franking credits is removed”.
Conclusion
Thank you again for inviting me to speak at your national conference this morning.
As you’ve heard me say, the Government doesn’t just values SMSFs – we back you as well. I want to see your sector grow and thrive.
A Shorten Labor Government will have terrible implications for your members and industry.
The Government values the work your industry does to ensure Australians have more in retirement.
I look forward to working with the industry well into the future.
Thank you.