Balance caps would negatively impact confidence in super

Speaking at the SMSF Association National Conference on Wednesday, the association’s head of policy and advocacy, Tracey Scotchbrook, acknowledged that excessively high balances are outside the policy intent of superannuation but stated that it is a legacy issue that will be resolved over time.

“Our fear is that a system that is already complex with multiple caps and thresholds will become even more so, and, consequently, having a negative impact on consumer confidence in superannuation,” Ms Scotchbrook said.

“We are also concerned that this debate is being framed as an SMSF issue when APRA-regulated funds also have large balances.”

Earlier in February, Treasurer Jim Chalmers responded to calls for a cap on superannuation balances, including from Mercer and the Australian Institute of Superannuation Trustees (AIST), stating that funds boasting tens of millions of dollars fail to meet the objective of super.

He added that “$5 million is a lot closer to the purpose of superannuation than $100 million”.

Ms Scotchbrook said a hard cap would raise investment issues for members, particularly those with illiquid assets.

“How much time will fund members have to act and what will be the potential disruption to markets with people being forced sellers. There is also the issue of the impact on fund administration and management costs, as well as the effect it could potentially have on other members of the fund,” she said.

Ms Scotchbrook also raised concern over retrospective taxation of funds that were accrued under the current tax environment.

“Any growth in fund investments has accrued in the current tax environment, so any changes to the taxation of unrealised capital gains would therefore have a retrospective effect,” she said.

“Gains accrued under the existing tax environment should continue to be taxed in the same manner, noting the CGT concessions that applied under the Fair and Sustainable superannuation reforms in 2016–17.”

Those individuals who have contributed personal injury compensation amounts or received insurance benefits in superannuation also should not be forgotten, Ms Scotchbrook said.

“These proceeds are essential for the funding of the ongoing care and needs for the lifetime of those individuals. Just like the current transfer balance cap and total superannuation balance rules, those proceeds must be expressly excluded from any proposed measures,” she said.

Speaking at an event on Monday, Mr Chalmers declared that Labor wants to “end the super wars once and for all”, and vowed to make sure that future changes to the super system are compatible with its objective.

“Legislating super’s objective will change that because for the first time we’ll have a true north — a shared goal that we can work towards together,” the Treasurer said.

Following the Treasurer’s announcement on Monday, several industry groups, super funds, and financial services companies backed the proposal to legislate an objective of superannuation.