The Federal Government is being urged to use the 2021-22 Budget to reduce complexity in the retirement income system.
In its submission, the SMSF Association says the Retirement Income Review found that the system was “complex and hard to navigate” – a finding that the Association agrees with.
SMSF Association CEO John Maroney says: “The superannuation system is complex. Since 1 July 2016, the legislation and complexities in administering superannuation accounts, particularly for SMSFs, has significantly increased. There are now numerous thresholds, caps, indexation methods and limits that require constant monitoring and reporting.
“With Transfer Balance Cap (TBC) indexation now occurring on 1 July 2021, we believe it is imperative that a simpler method of indexation is implemented. Additionally, the Total Superannuation Balance (TSB) thresholds should be streamlined.”
“The superannuation system is not only difficult for trustees and members but also their advisers who must be privy to information which, in many instances, they are unable to access in an accurate and timely fashion.”
To address this complexity, the Association makes three key recommendations:
- Remove or simplify TBC proportional indexation;
- Reduce the number of TSB thresholds; and
- Provide SMSF advisers and administrators access to ATO portals.
Maroney says: “One way to address the complexities associated with proportional indexation would be to lock in a member’s TBC at the time they first start a retirement phase income stream. Although this option may cause some minor inequities, we believe these are acceptable to avoid the cost and confusion proportional indexation would cause.
“Alternately, if the Government wishes to retain proportional indexation, the rules could be simplified by reducing the number of bands (currently 0% to 100%) of proportional indexation to five or some other appropriate number.”
On the issue of TSB thresholds, Maroney says the solution is to reduce their number. “As the system stands, there are multiple differing thresholds for individuals to be aware of when accessing certain superannuation concession, additionally, some of these are indexed and some are not. Not only do individuals find this confusing, but it also increases the risk of inadvertent breaches of the contribution caps and TBC leading to time-consuming and often costly remediation.”
Reducing the number of thresholds is achievable and will significantly reduce the complexity in the system.
The Association is also calling for SMSF advisers to be granted access to the ATO portal. “We recommend individuals who are registered with the TPB as a tax (financial) adviser and the fund’s appointed SMSF administrator should have access so they can provide financial advice more efficiently. “In essence, there is a fundamental lack of information for SMSF advisers who need to provide timely advice based on a myriad of complex caps, thresholds and balances. Accountants can obtain information but cannot provide advice and financial advisers are unable to obtain information but can provide advice. This jeopardises the quality and efficiency of advice being provided to members.”
The submission also examines financial advice and red tape. With regards to the former, the Association advocates a more efficient regulatory framework for advisory services that is consumer focussed after finding the current process is lengthy, costly and prioritises the needs of Australian Financial Service Licensees over consumers.
Finally, reducing red tape and making legislative improvements, particularly in relation to superannuation legislation technicalities, such as SMSF member residency, also remains a priority for the Association.
Meg Heffron will be discussing the complexities and strategy opportunities arising from contribution cap and TBC indexation in her SMSF Strategy Landscape session on day 1 of the SMSF Association’s virtual National Conference 2021.
National Conference 2021