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Older affluent males hit hardest by tax changes to large super balances
The people most likely to be impacted by the proposed changes to the taxation of investment earnings on superannuation balances over $3 million are men (65%) aged over 60 (90%), according to a policy and research paper by the Association of Superannuation Funds of Australia (ASFA).
In the paper ASFA analysed statistics from the ATO sample file for 2019–20 and from SMSF taxation statistics.
Their analysis also found those likely to be affected are relatively affluent, with approximately 25% owning a rental property, 25% receiving dividends of over $40,000 a year and around 15% with total income for tax purposes of over $500,000.
“Labourers and unskilled workers are not represented in those affected by the measure,” the report stated.
The ASFA analysis also revealed that currently approximately 30% of couples and singles reach or exceed the ASFA Comfortable Retirement Standard but by 2050 ASFA expects 50% of retiree households will be able to afford expenditure at the level of ASFA Comfortable or above.
On a macro level, Australia’s expenditure on the Age Pension is relatively low at 2.4% of GDP, compared to the OECD average of 8.8% of GDP. Even if the total cost of the Age Pension and super tax concessions doubled to be around 5% of GDP by 2060, as projected by the Retirement Income Review, that is still a very modest amount in international terms, according to ASFA.
Employers required to pay super on payday
Employers will be required to pay employees superannuation at the same time as they pay their salary and wages from 1 July 2026.
Assistant treasurer and minister for financial services Stephen Jones introduced the new measure saying that by switching to payday super, a 25-year-old median income earner currently receiving their super quarterly and wages fortnightly could be around $6,000 or 1.5% better off at retirement.
Currently employers are only legally required to pay super quarterly.
The ATO estimates over $3 billion worth of super goes unpaid and it is hoped the new measure will make it easier for employees – particularly those in lower paid, casual and insecure work – to keep track of their super and harder for employers to exploit them.
The ATO is also being allocated additional resources to help it detect unpaid super earlier, along with new targets for the recovery of payments.
Industry associations, like the Australian Institute of Superannuation Trustees (AIST), called for employers to start adopting the measure before the introduction date in three years’ time.
“There’s nothing to stop employers from paying super at the same time as wages, so I’d encourage employers wanting to differentiate themselves and be viewed as employers of choice to adopt the approach immediately,” AIST chief executive officer Eva Scheerlinck said.
SMSFs outperform APRA funds during tough times
Self-managed super funds (SMSFs) outperformed APRA funds during the Covid-induced market contraction in the 2019–20 financial year, according to the Self-managed super fund performance 2020–21 report released by the University of Adelaide International Centre for Financial Services (ICFS) and commissioned by the SMSF Association.
However, SMSFs underperformed APRA funds in the bull market conditions of the 2020–21 financial year.
The headline return for the SMSF sector for 201–20 was -0.6% and 14.8% in 2020–21, compared to -1.2% and 16% over the same periods for the APRA fund sector.
The researchers said that in those years when the APRA fund sector outperformed the SMSF sector, adjusting for small funds (balances under $200,000) and those that are excessively cash-concentrated (80% or more) accounted for much of the performance differentials.
“The results contribute to the existing body of evidence on the strong financial performance of the SMSF sector,” SMSF Association chief executive office Peter Burgess said.
“We know the actual performance of an SMSF is dependent on the fund’s investment allocation and therefore may bear little resemblance to these headline investment returns.”
“However, what this report and the research released last year for the period 2017–19 shows, is that from an overall SMSF sector perspective, there is no systemic underperformance when compared to the APRA fund sector.”
ASIC issues greenwashing infringement notice to Future Super
The Australian Securities and Investments Commission (ASIC) has issued an infringement notice to the promoter of the Future Super Fund – Future Super Investment Services – alleging greenwashing.
The notice was issued around concerns that a Facebook post by Future Super, which included the statement ‘Naysayers don’t join together and move nearly $400 million out of fossil fuels’, may have been false or misleading by overstating the positive environmental impact of the fund.
At the time of the Facebook post, Future Super had approximately $400 million in total funds under management, but it had no basis to represent the entirety of those funds had been invested in fossil fuels prior to being invested with Future Super.
“The post on the Future Super Fund Facebook page overstated the positive environmental impact of the Fund and we were concerned it may be misleading to investors and potential investors,” ASIC deputy chair Sarah Court said.
And in an update on its greenwashing interventions, ASIC said it would be progressing its greenwashing surveillance on the superannuation fund sector and the wholesale green bond market in 2023.
Large super funds have more than 30% in unlisted assets
An analysis of unlisted assets held by five of the largest superannuation funds in Australia by Morningstar has found that some fund options have more than 30% of funds in unlisted assets.
“With its long-term framework, the retirement system supports the ability of superannuation funds to buy multigenerational (often illiquid) assets, which should deliver great returns for investors over time.” Morningstar director of manager research ratings Annika Bradley said in the report.
“However, we need to preserve the sustainability of such a system to ensure the illiquid component of these funds are prudently managed. But measuring liquidity is complex and it’s important to consider all relevant factors — not just the headline illiquid or unlisted allocations.”
In the analysis, Bradley examined the assets of the Australian Retirement Trust, AustralianSuper, Aware Super, Cbus and UniSuper. These five funds represented almost 40% of this pool of unlisted superannuation assets reported to APRA last financial year.
Australian Retirement Trust’s Lifecycle Balanced Pool held the highest level of unlisted assets at 34%; UniSuper’s Balanced Option had the lowest level at 13%, and AustralianSuper’s Balanced Option sits at around 31%.