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Objective for superannuation to be legislated
The Albanese Government has announced it will legislate an objective for superannuation, something it says is necessary to advance the discussion around the concessional taxation of large self-managed super funds (SMSFs).
“No other foundational public policy has existed for thirty years without a clear and shared understanding of its objective,” Assistant Treasurer and Minister for Financial Services Stephen Jones told the AFR Super & Wealth Summit.
“There are many opinions on how the super system should be improved. Many of these opinions are well-meaning. But how can we have a conversation about the directions if we don’t know the destination?
“This is why we have announced that we will legislate an objective of super,” Jones said.
He pointed out that there are currently 32 SMSFs with more than $100 million in assets. The largest of these has over $400 million in assets. The concessional taxation of these mega SMSFs is a real cost to the budget with Mercer estimating the tax concessions on a single $10 million SMSF would support 3.1 full aged pensions.
“I celebrate success, but the concessional taxation of funds like these has a real cost to the budget, which needs to be considered,” Jones said.
“We will consult widely to inform a common, agreed objective for super. Australians need to have their say. With an objective that is settled, we can talk sensibly about tax.”
Vanguard Super launches lifecycle super fund
Vanguard Australia has launched its much-anticipated superannuation fund, which has been over two years in the making, with an accumulation product called Vanguard Super SaveSmart. The offering includes a lifecycle default fund or MySuper option, along with a series of index-based diversified options and single sector investment options.
The Vanguard Super Lifecycle option is launching with 36 cohorts. Once a member reaches 47 years of age the lifecycle option will start to reduce the asset allocation to growth assets annually on a member’s birthday for the next 36 years. These kinds of funds are also called target date funds in the US as they target a particular date for retirement and adjust asset allocation accordingly.
Vanguard said that it has the potential to tailor the cohorts even more and could add in other factors like gender or type of work in the future.
The fund is also very low cost. The default, or MySuper option, has a yearly fee of 0.58%. Vanguard says this is the lowest in the Australian superannuation market for member balances under $50,000, and for members aged 47 years and under.
Super funds that failed performance test cut fees
Super funds that failed the annual super performance test have cut their fees by 20.6% on average, according to research by Super Consumers Australia.
Super Consumers Australia said all except one of the funds that failed the performance test have either lowered their fees or are merging with a better performer.
“The test is doing what it set out to do, chopping off the tail of poor funds. The performance test’s objective ‘bright line’ and clear consequences for failure have driven dramatic positive fee changes for people in poor products,” Super Consumers Australia director Xavier O’Halloran said.
The research also found products that passed the test by at least 50 basis points increased their fees 5.7% on average.
“This is a worrying trend and shows the need to turn up the heat on funds that are clearing the minimum bar of the performance test.”
O’Halloran said the next step was to drive healthy competition among funds at the top end of the market and much could be achieved through improvements to the comparison tool.
AMP launches income for life account
AMP is the latest big financial services player to release a retirement income product. It has launched the MyNorth Lifetime Income account, which provides a retirement income stream for life, and the MyNorth Deferred Lifetime Income account, which is a tax-free accumulation account for customers who have satisfied a condition of capital release but are deferring drawing down an income.
AMP has also launched the MyNorth Lifetime Super account, an accumulation account that lets customers plan and save for retirement while locking in asset test benefits.
AMP says the products are like life insurance but in reverse. The products provide income for life by reducing the amount of capital available at death or exit of the product. Investors are paid an annual bonus that rises the longer they live, and the ‘insurance premium’ is paid from the client’s account when they die or exit the product.
Investors get their annual bonus as income, which is underwritten by TAL, along with the income from a market-linked product. The product is currently available via financial advisers only.
Income limits for Commonwealth Seniors Health Card rise
As part of measures announced in the October Federal Budget, the income test for the Commonwealth Seniors Health Card (CSHC) rose to $90,000, from $61,284, for singles on 4 November.
For couples the income threshold rose to $144,000 from $98,054 and will increase to $180,000 from $122,568 for couples separated by illness, respite care or prison.
There is no assets test.
An estimated 45,000 older Australians not receiving a government pension are expected to benefit from the change. The CSHC provides access to cheaper healthcare and some other discounts.
SMSF data for June 2022
The number of self-managed superannuation funds rose by 4.4% to 603,432 SMSFs as the number of members of SMSFs rose by the same percentage to 1,123,430 in the June quarter, according to the latest data from the Australian Taxation Office.
Funds under management held in SMSFs rose slightly from $843.7 billion in June 2021 to $868.7 billion a year later as SMSFs, like all other super funds, were impacted by market volatility.
The top asset types held by SMSFs (by value) during the last financial year were listed shares at 29.7% of total estimated SMSF assets, and cash and term deposits at 16.7%.