When considering superannuation policy, one of the fundamentals we look for, as does the superannuation industry, is certainty. If an individual commits to a superannuation related investment strategy today, do we know the outcome from a taxation and superannuation law point of view?
In the lead up to the 2016 Federal Budget, one of the few things ruled out was changes to superannuation. We were expecting some changes to the taxation of superannuation on the night, however the changes have gone further than anticipated that will have a negative impact on superannuation and the industry.
The superannuation package did contain some positive reform. The simplification of the contribution rules allowing contributions to be made up to age 74 and removing the tests for personal contribution to be claimed as a deduction simplifies the system and reduces the red tape when contributing to superannuation.
Allowing individuals with less than $500,000 of superannuation to carry forward previously unused concessional contribution limits will help those taking time out of the work force to make tax effective contributions to build up their superannuation balance.
On the negative front, the introduction of the life time cap on non-concessional contributions is confusing and in many cases has impacted on plans already in place. This announcement is effective from budget night and all contributions since 1 July 2007 are impacted. As a result, individuals who contributed to superannuation knowing the contribution limits in place at the time may now be impacted by this change.
The limitation of pension accounts to $1.6m has reduced confidence in the system.
The ultimate confusion is that an election has been called and the announcements are not law. However all members and their advisers have to rely on is an announcement in the budget papers when planning superannuation contributions and withdrawals.