Super news for February 2021

Transfer balance cap to rise 1 July 2021

The Australian Taxation Office has announced that the Transfer Balance Cap will rise for the first time since it was introduced – from $1.6 million to $1.7 million on 1 July 2021 – as a result of an increase in the consumer price index.

The indexation means that individuals will now have a personal transfer balance cap of between $1.6 million and $1.7 million and no single TBC will apply to everybody. An individual can access their TBC via ATO online services through myGov.

 “We will calculate each individual’s personal TBC based on the information reported to and processed by us. If you report pre 1 July 2021 events after 1 July 2021, we will go back and recalculate the member’s personal TBC and apply that new cap to their affairs,” the ATO says.

The changes will make the application of the TBC more complex and will also impact a number of other caps and limits relating to superannuation. It is also expected that the total super balance limit will increase from $1.6 million to $1.7 million from 1 July 2021.

The ATO will hold a webinar to explain the changes on March 2, 2021.

Super associations urge government to make super fair for all

The Association of Superannuation Funds of Australia (ASFA) has called for a more equitable superannuation system in its pre-budget submission for the 2021-22 Federal Budget.

ASFA is asking for a number of recommendations to be considered, including one that the self-employed be required to make superannuation guarantee (SG) contributions, and a new category of worker be introduced for ‘dependant contractors’ for whom SG contributions are paid on their behalf.

“Looking ahead, self-employment will become more prevalent in the Australian workforce with the rise of the gig economy. Most new gig workers will be self-employed contractors. In the absence of reform, this will mean there will be a lower proportion of jobs for which workers will receive compulsory SG contributions, and lower superannuation balances at retirement for affected workers,” the Association said in the submission.

The submission focuses on the Retirement Income Review on equity in the system and also proposes that the low-income superannuation tax offset should apply to those with taxable income up to $45,000. This would avoid those in that income bracket paying a similar tax rate on superannuation contributions to their marginal tax rate.

“Superannuation is about ensuring people have adequate income in retirement, it is not about facilitating excessive wealth transfers,” ASFA chief executive officer Martin Fahy said.

Meanwhile, in its pre-budget submission, the Australian Institute of Trustees (AIST), has called on the Government to close the COVID-19 super gap.

“Closing the COVID-19 super gap will require a commitment from Government, employers and individuals, a commitment crucial to minimising the long-term consequences of the virus – particularly for those who can least afford it,” AIST said in its submission.

The Association recommended a one-off Government superannuation contribution to those low-income earners (those earning less than $39,837) who accessed their super early. The amount of this Government contribution would be set at a quarter of the value of the super amount which was accessed and be capped at a maximum of $5,000.

The AIST also called for the Government superannuation co-contribution rate and threshold to be increased.

Nearly one million young Australians left with little or no super

Nearly one million Australian workers under the age of 35 have closed their superannuation accounts, or have a balance smaller than $1,000, as a result of the government’s early superannuation release scheme, according to analysis by the Australian Institute of Superannuation Trustees (AIST).

AIST found that young workers were twice as likely to close their superannuation accountants compared to members over 35 and women were more likely than men to have their account closed.

Over 73,000 Australians have also lost insurance cover linked to their accounts.

The Scheme allowed Australians experiencing financial hardship as a result of COVID-19 to withdraw $20,000 in two separate tranches. In total 3.4 million Australians withdraw around $36 billion during the course of the scheme.

“Young women, in particular, will struggle to make up the COVID savings gap as many will be entering the phase of their life when they take a career break to have children and their employer super contributions are on hold,” AIST CEO, Eva Scheerlinck, said.

SMSF Association calls for less complexity in super

The SMSF Association is asking the Government to consider a simpler method of indexation of the Transfer Balance Cap in its Federal Budget 2021-22 Submission.

The TBC will be increased to $1.7 billion on 1 July 2021 but individuals who had a transfer balance account before 1 July 2021 will have a cap calculated proportionally on the highest balance of their transfer balance account.

The SMSF Association is asking for this TBC proportional indexation to be removed or simplified and for a reduction in the number of total superannuation balance thresholds (for which superannuants can access certain concessions).

The SMSF suggests that one way to reduce the complexities of proportional indexation would be to lock in a member’s TBC at the point they first start a retirement 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,” SMSF Association chief executive officer John Maroney said.

“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.”

ATO has its eye on auditor details in SMSF annual returns

The ATO is reminding self-managed superannuation (SMSF) trustees that lodge their SMSF annual returns in February to correctly complete Question 6 in their return – where they are required to enter their auditor’s details – in order to avoid penalties.

The information required includes the SMSF auditor’s name, the SMSF auditor number (SAN) and the date the audit was completed.

“Make sure you use the information in the SMSF independent auditor’s report to enter these details correctly,” the ATO says.

Trustees could face penalties for making false and misleading statements if the SAN or audit date are incorrect and they are deliberately misreporting auditor details on the SMSF annual return (SAR) or lodging a SAR prior to the completion of their audit.

The ATO cross checks this data with auditors by providing them with a list of SMSFs that have indicated they completed an audit for them to confirm.

High Court says Westpac subsidiaries gave unauthorised personal advice

The High Court of Australia has upheld the Full Court of the Federal Court’s decision in the Australian Securities and Investments Commission (ASIC) case against Westpac around what constitutes personal and general advice.

The High Court confirmed that Westpac Bank subsidiaries – Westpac Securities Administration Limited (WSAL) and BT Funds Management Limited (BTFM) – gave unauthorised personal advice, rather than general advice, during a series of calls in 2014-15 with BT Super customers.

The calls persuaded the customers to consolidate their superannuation into their BT super account. By doing so, the Westpac subsidiaries breached financial services laws, including the requirement to act in their clients’ best interests and the requirement to act honestly, efficiently and fairly.

“By clarifying the distinction between tailored, quality, personal advice in the customer’s interest, and general advice given via a sales campaign, today’s judgment will provide clear guidance to those financial institutions that develop campaigns to sell financial products through direct approaches to retail clients,” ASIC Commissioner Danielle Press said when the decision was announced.

As a result of these campaigns, ASIC says Westpac increased its funds under management by almost $650 million between 1 January 2013 and 16 September 2016.

Optimum Pensions to launch new market-linked lifetime annuity

Optimum Pensions, in conjunction with Generation Life, plans to develop a market-linked lifetime annuity to provide retirees an income for life. They expect to launch the product in September.

“There has been insufficient retirement product choice to help Australians optimise their savings and provide a lifetime of expenditure,” Generation Life chief executive officer Grant Hackett said.

“We are delighted to partner with Optimum Pensions to develop an innovative lifetime annuity that will provide the confidence this generation needs to enjoy retirement and not have to worry about paying the bills,” he said.

The two organisations have partnered with a global reinsurer to reinsure the longevity risk with the product, and the investment risk will be carried by the annuitant. The product will be structured so that the income should roughly increase over time by at least the rate of inflation.

“Using Optimum Pension’s team’s expertise, we will work with Generation Life to launch a practical solution to tackle pension complexity in a simple manner,” Optimum Pensions managing director and founder, David Orford, said.

Maritime Super to outsource investment to Hostplus

Hostplus Super will take over the investment management of all of Maritime Super’s approximately $6 billion in funds under management, under a partnership arrangement it believes is a first in the Australian Superannuation Industry.

From 30 April 2021, Maritime Super’s assets under management will be combined with Hostplus’ approximately $55 billion in assets under management via its Pooled Superannuation Trust (PST).

The partnership will provide Maritime Super members access to a suite of investment opportunities not always available to smaller funds – such as infrastructure, private equity and venture capital.

“Hostplus’ PST provides other APRA regulated funds, and especially smaller funds, a viable and effective alternative to a merger by extending their outsourcing operating model to now include the management of their investments alongside one of Australia’s largest and long-term well-performing profit to member funds, while maintaining full control of their fund’s strategy and member and employer relationships,” Hostplus chief executive officer, David Elia said.

Maritime Super will continue to provide insurance cover specifically tailored to maritime occupations for its members, along with its national network of financial advisers and a worksite visitation program.