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FPA: Measures to fix excess contributions falls short

Wed, 11 May 2011 04:06:39 +0000

FPA propose further reforms to super contributions to secure Australia’s long term retirement savings.

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Last night’s Federal Budget announcement allowing excess superannuation contributions to be refunded back to the individuals reflects the ongoing advocacy efforts of the Financial Planning Association (FPA) but represents a lost opportunity to fix a problem facing many Australians.
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“While this reform is expected to reduce the number of occasions where the concessional contribution caps are exceeded and individuals penalised, the measure falls well short of delivering a solution for a very serious problem,” FPA CEO Mark Rantall said.
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“We believe the government could have taken advantage of the strong economic position to embark on a more ambitious tax reform program and whilst the concessional contributions amendments are welcome, there needs to be a substantial rethink of how we engage Australians in contributing to a stronger, long term retirement income position.”
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The FPA has called on the Federal Government to remove the 46.5 per cent excess contributions tax penalty for non-concessional contribution and:
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Refund excess non-concessional contributions back to the taxpayer
Provide taxpayer with warning and impose no monetary penalty if it is taxpayers first break of the non-concessional cap
Impose a monetary penalty (admin fee) on the taxpayer if this is the second/third break of the non-concessional cap

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Nor does the FPA support the introduction of a $500,000 account balance eligibility threshold for concessional contributions. Rather, the FPA has called for:
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The concessional contributions cap for people aged 50 and over to at least remain at $50,000 but indexed with inflation
Removal of the Superannuation Guarantee (SG) from the concessional contribution limit

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From 1 July 2011, individuals who breach the concessional contributions cap by up to $10,000 can request that these excess contributions be refunded to them. This refund will only apply for first time breaches of the concessional caps. In effect, individuals will be able to take excess concessional contributions out of their superannuation fund and have it assessed at their marginal rate of tax, rather than incurring a potentially higher rate of excess contributions tax. However, what is not clear is whether individuals who have breached the cap before this measure commences will be eligible.
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The Government plans to complement the other reforms including the increase in the concessional caps for those over 50 (with superannuation balances under $500,000) from 1 July 2012; the gradual increase in the SG rate to 12 per cent; and a new super contribution of up to $500 for low income earners.
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“The FPA looks forward to continuing to work with the Federal Government and Treasury to ensure we achieve the most equitable outcome for both the financial planning profession and the retirement savings of all Australians,” Mr Rantall said.

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Actuaries disappointed longevity risk ignored again in 2011 Federal Budget

Wed, 11 May 2011 00:34:16 +0000

The Institute of Actuaries of Australia (the Institute) has today said it was disappointed the pressing issue of longevity risk was largely ignored in the 2011 Federal Budget.

The Institute has been urging the government to develop longevity risk policies, including removing barriers to the development of a new generation annuities market, to meet the growing challenges of Australia’s ageing population.

Recognising many retirees superannuation will not meet their retirement needs, Institute chief executive Melinda Howes it was time the government took decisive action on this issue.

“We were pleased the Federal Government followed our recommendation and allowed older Australians to boost their standard of living in retirement by working part-time without jeopardising their pension income. From 1 July, age pensioners will be able to earn up to $250 per fortnight before their pension will be impacted by the means test.”

Ms Howes said although this positive change was made as part of the Government’s workplace participation initiatives, the issue of longevity risk continues to be side-lined when a number of solutions are available. These include allowing development of flexible “new generation” annuities which protect against the risk of outliving your retirement savings and the market risk of losing superannuation capital in retirement.

“Retirees need access to products that reduce the two major risks they face, market and longevity risk. Innovative annuity products are ideally suited to meet these objectives however a number of legislative impediments are limiting their development,” she said.

In its pre-Budget submission, the Institute urged the government amend the Superannuation Industry Supervision Act Regulation 106 as it is unnecessarily prescriptive and as a result is hampering innovation. The unfavourable treatment of annuities under aged care and Centrelink rules should also be reversed and the tax rules on deferred annuities should be changed so that, if taken out in the drawdown phase, the product is regarded as a pension (rather than a non-pension) for tax purposes.

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AFA: FOFA reforms include new education standards

Thu, 07 Apr 2011 22:50:07 +0000

This week the Government and ASIC have made two key announcements concerning the future of advice.

Increasing education standards for new and existing advisers
Financial advisers and the scope taxation advice

Together with FoFA these proposed changes will impact the landscape of advice in this country. The AFA is well placed to ensure that these changes are appropriate and will work to ensure that the implementation is as effective as possible.

RG 153 : Advisers and Education RG 153

ASIC proposes amending the assessment and professional development framework for financial advisers by requiring:

all new and existing financial advisers who provide Tier 1 financial advice to pass a Financial Services Competency Certification exam to ensure they have the requisite competencies to perform their role. (‘Entry Stage’)
all new financial advisers following Entry Stage to be supervised by a supervisor (who has at least 5 years experience in the industry) for a minimum period of 1 year full time or equivalent;
all financial advisers to undertake a Knowledge Update Review every three years on changes to laws, market issues and new products; and ongoing continuing professional development requirements.

Click here to read RG 153

Future Regulation of Financial Planners Providing Tax Advice

The scope of services that can be provided by financial planners is determined according to the type of registration held.
A financial planner can provide general factual tax information (not tax advice).
If a financial planner has an additional form of registration, they can provide tax advice within the context of providing financial advice. The scope of tax advice that will be permissible within this category will depend upon the competencies that are required.
Tax agents registered under the Tax Agent Services Act 2009 provide full tax agent services including preparing or lodging returns or representing a taxpayer in their dealings with the Commissioner of Taxation.

Click here to read the Minister’s speech

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