Superannuation changes: Retrospective? You betcha.
Like an unwanted visitor, the government's budget changes to superannuation just will not go away from Napoleon's election campaign.
How voters feel about superannuation changes
Sadly, the argument seems confined to an arcane discussion as to whether the changes are 'retrospective' or not.
W&D's view is that the proposed $500,000 lifetime cap on after-tax contributions (weirdly called 'non-concessional contributions' - NCCs), with the 'lifetime clock' starting in 2007, is unarguably retrospective.
But, in reality, it is what it is. And that is: it is a stupid policy.
Follow W&D's five reasons:
1. It is, unarguably, retrospective
The start date for the NCC lifetime cap legislation (but not the starting date of the clock) was budget night. But a budget announcement does not become law on budget night. If the law is passed - probably in November - it will be effective from 3rd May (i.e. budget night), which would clearly make it retrospective by some six months.
Sure, this will always give people the opportunity to continue to use what the government-of-the-day maintains is a loophole intended to be changed in the budget. But, so be it. This is, after all, a democracy.
So always be alarmed when the Treasurer, of any hue, says in his/her budget speech, "...effective tonight, this government..." This applies to any budget announcement.
Government by fiat has a whiff of Stalin/ Hitler/ Mao about it.
2. NCC window lost forever
Because of the above and the legislative and record keeping uncertainty, some people may not make NCCs until the law is actually changed, in November or thenabouts, if at all. And thus those whose last contribution window for NCCs would be the legislative change date (e.g. in some circumstances those turning 75) have lost their last NCC opportunity.
If the legislation fails, will the government extend the NCC age-limit by six months to allow a catch-up?
3. No opportunity to rebuild 'lost' superannuation
People who have already reached their $500,000 NCC limit, but who have lost their superannuation because of Family Court orders, have no ability to rebuild their superannuation.
4. Limit is too low
W&D does not have difficulty with a lifetime limit (and, in fact, wishes a life-time limit on deductible contributions, but no annual limit). But $500,000, whenever starting, is just too low to encourage people to invest in superannuation. There are many superannuation fund balances, for whatever reason, that are not sufficient to provide a self-funded retirement income stream. A cap of $500,000 on after-tax contributions is insufficient for many to avoid being on the pension, or close to it.
And who came up with the $500,000 figure in the first place? What is the reasoning? Shouldn't the figure bear some relationship with the tax-free pension cap?
5. Administrative chaos
W&D has trouble counting forwards, so he cannot imagine counting backwards to 2007. So, who is going to do the counting? How many people know what NCCs have been made as far back as 2007? Who has got the records? As tax records have to be kept for just 7 years, where does the onus lie?
Rumour has it that the ATO will provide the data. So, would someone tell W&D how the ATO is going to manage with responding to the 300,000 superannuation fund members' enquiries (the Assistant Treasurer's estimate of those affected, see below) about the size of their NCC's since 2007?
Donald Trump would have more success building a wall along the border with Mexico.
It is facile for the government to say that the proposed changes are okay, because they only "affect the less than 1% of superannuation fund members who are over the lifetime cap".* Run that past W&D again, Assistant Treasurer! So a bad policy is okay because it affects only a small number of Australians?
W&D is ever keen to assist the government, any government, with policy development. And to this end, suggests to the Assistant Treasurer, that:
- the lifetime NCC cap be increased to 62.5% of the tax-free pension limit (i.e. $1.6m x 62.5% = $1,000,000);
- the lifetime NCC cap changes commence from 1-Jul-17, the same date as the other superannuation changes; and
- members whose previous NCCs have been split with an ex-spouse be allowed to re-use those NCCs.
The only saving grace, if there is one, is that the Labor Party's superannuation policy is just as absurd and administratively complex (but, at least, not retrospective).
* Assistant Treasurer, Kelly O'Dwyer, in The Australian, on Tuesday.