Draft superannuation legislation: a step towards gender equity

The government’s political problems with the superannuation tax changes proposed in May’s Budget are well known as Parliament still awaits the draft legislation on the most contentious of these issues.

But yesterday it certainly got the initial tranche of draft super bills spot-on.

It would be unfair to characterise the draft legislation on the purpose of super and the new Low Income Superannuation Tax Offset (LISTO) as low-hanging fruit, because they are very important in their own right. And they did not disappoint.

On the purpose of super, we believe the proposal is about right. There has been a lot of industry debate on the proposed definition of super, but the government’s wording achieves a satisfactory compromise. It clarifies that superannuation is meant to help fund a person’s retirement: it is not for unlimited wealth accumulation. That is important.

Such an agreed objective, enshrined in legislation, will provide a mechanism for evaluating the performance of the system and all proposed policy reforms. It will enhance confidence and stability in our super system.

Crucially, this should continue to add momentum to the development of additional retirement products and services to retirees. The real issue for the industry is the fundamental change of emphasis that is needed from the accumulation phase to retirement incomes.

As for the LISTO tax measure, that is excellent news both from a tax equity and superannuation coverage perspective.

The current low income tax contribution was legislated to be abolished from 30 June 2017.  The new LISTO effectively restores this provision, and so is a good and fair proposal.  Without a low income tax offset, low income earners would pay more tax in superannuation than if they had earned the income directly.

In another welcome development, although the LISTO is referred to as a “tax offset”, this is not strictly the case from an income tax perspective.  Superannuation funds would have had a significant compliance burden in determining which of its members qualified for a tax offset, as they would have had to know members’ taxable incomes for the year.  But making the payment directly to the individual (or by their direction to their superannuation fund) “offsets” the tax detriment of the tax paid in the fund for concessional contributions for low income earners, without causing a significant compliance burden to the Fund.  Treasury should be congratulated for listening to the industry feedback.

Similarly, the proposed changes in relation to deducting personal contributions are welcomed from a coverage perspective, as it improves the ability of more Australians to make personal contributions to their superannuation.  Under existing rules, people whose employers do not allow them to make salary sacrifice contributions or those who are substantially self-employed but with greater than 10% of their income from employment, are disadvantaged.

The LISTO proposal will assist in ensuring equity, particularly for women who have been disadvantaged to date within the system and it warrants bi-partisan support in Parliament. As should the super purpose. Both reforms are fair, simple to implement and long overdue.

We know the proposals to come – on the $1.6m cap on tax-free pensions accounts, the $25,000 annual limit on pre-tax contributions and, most of all the $500,000 life-time limit on post-tax contributions – will see a renewed furore. But let us at least welcome a good start made to super proposals yesterday.

Paul Howes

Damian Ryan

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