Now that the election is over, there is much speculation on the Government’s super announcements and the extent of likely changes.
In the Budget, the Government confirmed that it would legislate the objective of super as “to provide income in retirement to substitute or supplement the age pension”.
Of itself, this would seem innocuous, but it is critical that the legislation introducing it should clarify what this actually means.
The risk is that, without clarification, a future Government could read this down such that any and all income drawn down from super in excess of the age pension, or the accounts within funds that produced income in excess of the age pension, would result in no tax concessions whatsoever.
The Budget papers estimate that the present announced cap of $1.6 million would translate to $100,000 per annum or 4 times the age pension over most retirees’ life expectancy. This appears reasonable taking into account both investment earnings and the drawdown of capital.
However, using the same basis, a future Government could therefore choose a cap as low as $400,000, translating to $25,000 per annum or an amount roughly equal to the age pension, and claim that this meets the objective of substituting or supplementing the age pension.
Importantly, the legislation should clarify the extent of the “supplement” to the age pension that it is reasonable for members in funds to target, and thus to which the 0 percent tax rate on earnings (or indeed the 15 percent tax rate on earnings) should apply.
So far, the Government’s specific measures have received most of the media attention. However, the legislation of the objective and the guidance accompanying it needs to be elevated in this discussion, as it will provide coherence for and guide the future direction of changes to the tax settings for super.