by Olivia Long

Like many SMSF trustees, I suspect, I sat down to hear Treasurer Joe Hockey deliver his first budget address with bated breath. The Government had given us a cast iron guarantee before the last election that the key pillars of the superannuation system would be left untouched for the life of this parliament, but, as I reminded myself, they were politicians making those promises.

After all, it was Paul Keating who gave us the LAW tax cuts in the early 1990s – only to change direction after the 1993 election. To keep this column suitably non-partisan, John Howard’s tough budget measures in 1996 introduced the concept of core and non-core promises into the political lexicon. Can we change this word to something we understand?

So to discover on Tuesday night that superannuation had largely emerged unscathed in one of the toughest budgets handed down in living memory was a huge relief.

Indeed, our SMSF sector even got some good news found deep in the budget papers when we discovered that the Federal Government had decided to allow taxpayers to withdraw excess non-concessional contributions made after 1 July 2013. It was recognition it was typically by mistake and not a deliberate ploy.

Under the previous regime trustees could find themselves paying up to 93% on excess non-concessional contributions – a penalty out of all proportion with the crime.

But as is often the case with government decisions, the devil is in the detail, and there are still some issues to be worked through. But Tuesday night's announcement is definitely a step in the right direction.

No one in our industry can be happy with the Government’s decision to hold the Superannuation Guarantee (SG) Rate at 9.5 per cent from 1 July 2014 to 30 June 2018 before increasing in 0.5% increments to reach 12% by 2022-23. Although we appreciate the Government’s need to adopt tough budgetary measures, we believe this is counter- productive when viewed in the context of longevity and the need for people to be self-sufficient in retirement.

Indeed, the Government acknowledged these issues with the announcement to increase the age pension to 70 from 2035. From 1 July 2025, the age pension qualifying age will continue to rise by six months every two years to reach a qualifying age of 70 years by 2035. 

It seems to me with this measure the Government is explicitly acknowledging the challenges posed by longevity and the need for people to be self-sufficient in retirement, but then adopts a policy that simply compounds the problem. I have no doubt there are actuaries now doing their sums that will show what this four-year holding pattern with the SG will mean to someone’s superannuation package who’s entering the workforce now.

Finally, no one likes a tax (sorry, levy) increase, but for those trustees earning more than $180,000 now facing a “temporary” two percentage points increase in their tax rate for three years, it’s worth thinking seriously about salary sacrificing into superannuation to help minimise the impact of Joe Hockey’s impost that hopes to raise $3.1 billion over this period. It’s time to talk to your advisor now.