The Actuaries Institute welcomed the 2016-17 Federal Budget this week, citing policy changes designed to inject more equity and fairness into the retirement incomes system.
The 2016 Budget introduced the largest changes to the superannuation sector since the Costello Budget of 2007. It has further simplified the system while reinstating equity. 96% of individuals with superannuation will not be adversely affected by the changes.
In the Institute’s media release of 3 May, Institute President Lindsay Smartt commented that “overall the Budget changes improve the system, making it fairer while also increasing revenue to assist the economy in these financially constrained times.” He further commented that “the Institute believes these changes will help to meet the Government’s objective of superannuation, which was adopted from the Financial System Inquiry – to provide income in retirement to substitute or supplement the Age Pension.”
The Institute has argued consistently for superannuation reform to focus on the development of innovative retirement income stream products over lump sums to better manage longevity risk in Australia’s ageing population and added that it was pleasing to see the extension of tax exemptions to retirement products such as deferred lifetime annuities and group self-annuitisation products.
President Lindsay Smartt further commented “we acknowledge the doubling of the tax rate on superannuation contributions for people who earn more than $250,000 a year, which, together with a reduced concessional contributions cap, raises an estimated $2.5 billion for the federal budget over the forward estimates.”
The changes to Transition to Retirement (TTR) are aimed at reducing the benefit for wealthy people who use it for tax reduction purposes. However, the Institute noted that the change also makes it less attractive for those on average incomes and goes against the original intent of TTR which was to encourage people to work longer and provide a mechanism where people can gradually phase down.
In its media release, the Institute welcomed the following budget measures designed to achieve longer term structural reform in retirement incomes:
► Introducing a $1.6 million transfer balance limit on the amount that can be transferred to taxfree retirement phase accounts (thereby receiving tax concessions on investment earnings rather than being taxed at 15%);
► A 30 per cent tax on concessional contributions for those earning over $250,000 per annum;
► Removal of regulatory barriers on the development of retirement income stream products such as deferred lifetime annuities;
► Retention of the low-income super contribution (LISC) now renamed LISTO, which is a payment of up to $500 to help low-income earners save for retirement. The Institute also said it would continue to encourage the Government to focus on:
The Institute also said it would continue to encourage the Government to focus on:
► Including estimates of the future costs of natural disasters in the budget’s Statement of Risks. This could entail development of Government policy to improve resilience against natural disasters and to design funding mitigation and adaptation measures supported by comprehensive cost benefit analyses.
► Undertaking ongoing research into understanding and managing the financial and economic implications (risks and opportunities) of climate change and take action to reduce greenhouse gas emissions, improve energy efficiency and the development of renewable energy sources. We also support the development of policy to address the significant implications for Australian business and society from the transition to a low greenhouse gas economy.
Institute Deputy CEO and Head of Public Policy Elayne Grace and Michael Rice, Convenor of the Institute’s Public Policy Council Committee attended the Budget LockUp and produced this detailed report for Members.
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by Andrew Ngai