Martin Breckon
After receiving feedback from industry, the federal parliament has passed amendments giving effect to regulatory change, continuing the implementation of changes to superannuation that were announced by the Turnbull government in the 2016 federal budget.
Martin Breckon, IOOF’s Head of Technical Services said “We are pleased to see the Government continuing to refine the operation of its super reforms through passing changes that are fair and sustainable.
“While providing increased certainty, ongoing changes to superannuation have made it incredibly complex. In turn, this has made it incredibly difficult for individuals to manage their superannuation themselves, driving an increased need for them to seek advice.”
The regulatory changes confirmed by the passing of the amendments are effective from 1 July 2017 and include:
- Retail super funds will be able to establish a new accumulation interest for the payment of a super lump sum as a result of a commutation authority issued under the transfer balance cap system, without requiring an application form at the time of commutation. This provides a ‘safety net’ for individuals who do not have an existing super benefit and do not take action before the ATO issue their super provider with a commutation authority as the provider can simply transfer the commutation into an accumulation account, keeping it in the super system.
- Fund-capped contribution limits are to be removed, reflecting the increased complexity with administering this arrangement under the new non-concessional contributions cap, particularly around overseas transfers with a sizable applicable fund earnings component.
- Commutations from income streams will not count towards a pension’s minimum drawdown requirement, and similarly it will not be possible to elect a pension payment to be taxed as a lump sum withdrawal. Going forward a lump sum withdrawal will reduce a person’s transfer balance account, whilst a pension payment will count towards the minimum payment required from an income stream.
- Certain defined benefit funds can elect out of offering personal deductible contributions to their members. These schemes may not have the ability to adjust their benefits based on additional personal contributions, or may simply not be able to handle the administrative complexity in dealing with these contributions.
- A death benefit is only considered a roll-over super benefit so long as it is paid as to a dependant entitled to receive a death benefit income stream. This will allow the ability to rollover a death benefit from one provider (who may not offer a death benefit income stream) to a different provider who is able to pay a death benefit income stream.
- Death benefit income streams, by definition, must be cashed as ‘retirement phase’ income streams to meet the requirements under the Superannuation Industry (Supervision) Act.
After consultations with the industry, the following proposed changes were removed from the final version of the amendments:
- The drafted ability to commute from certain commutation-restricted income streams has been removed from the final regulations. This could potentially introduce an inability for members with significant Term Allocated Pensions (TAP) interests to rollover from their existing product from 1 July 2017 as after this date a rollover of a TAP will not be considered a capped defined benefit interest. Thus TAPs with more than $1.6 million rolled over post 1 July 2017 will cause a transfer balance excess to be created which cannot be commuted. It is understood that reversionary capped defined benefit interests will remain as capped defined benefit interests on death of the original owner, as the income stream was in the retirement phase on 1 July 2017 and continues past death.
- The proposed relief from having to retain actuarial certificates for Self Managed Super Funds (SMSFs) and SAFs using the proportionate method to calculate their Exempt Current Pension Income (ECPI) where the fund was only paying account-based pensions or TAPs has not made law. This relief was mentioned as part of the explanatory memoranda for the Bill which introduced the transfer balance cap system, however the proposed approach for calculating ECPI under the non-actuary method was seen to be more expensive than obtaining the certificate in many instances, which may have led to the removal of the exemption.
At this time it is not known if the Federal Government plans to introduce any further regulation or legislation in relation to the super reforms.