It's time to make some super decisions

I'm thinking of buying Treasurer Scott Morrison a new t-shirt. It would read: “Superannuation chaos, panic, disorder: My work here is done.”

Superannuation is in disarray. People don't know what rules to follow. Planning is impossible. Public confidence is shot.

We'll be talking all about this and other things related to superannuation and investment during our Advisor Q and A webinar tomorrow (Thursday) at 12.30pm. We invite you to register for this event if you haven't already and to send in your specific questions.

The Turnbull government announced monstrous, generational changes to superannuation in May, then went straight to an election it nearly lost, and is now facing bigger threats to having the superannuation changes passed from within its own ranks than from its political opponents.

Nobody knows what to do yet, but one must err on the side of conservatism. Professionals are second guessing what political deal/s might be done. But providing certainty doesn't seem to be a priority for anyone in Canberra.

Government announces some small concessions

The Treasurer fronted radio station 2GB earlier this week to confirm that a couple of at-the-margin exemptions would be listed in the draft legislation, which is to be released shortly. Shortly was not defined.

Those exemptions include: “If you get a payout as a result of an accident ... that is exempted from the $500,000 cap,” Morrison said.

“(And) if you entered into a contract, before budget night, to settle on a property asset out of your self-managed super fund and you're using after-tax contributions to settle that contract, well that won't be included.”

In plain language: if you bought a property prior to Budget night and you were relying on non-concessional contributions in order to settle on that contract (that took you above the new $500,000 lifetime limit), then you would still be able to make those contributions.

Morrison said there would be other changes, but they wouldn't be detailed until the legislation came out.

However, these are minor “fairness” details. They are highly unlikely to be argued, or voted down, by any member of the federal Parliament.

Clarifying the bigger super picture

What really needs to be decided is whether or not the major disputed points are going to get voted through.

What are they? They should be of little surprise to you.

1. The $500,000 non-concessional contribution lifetime limit.
2. The $1.6 million transfer-to-pension cap.

And, to a lesser degree …

3. The reduction in concessional contributions to a flat $25,000 a year.

It's the first two proposals that are causing all of the angst … particularly within government ranks.

Coalition backbenchers have stated that the feedback during the election from the rank and file was about these two issues. It cost them financial donations and volunteers' time in electorates.

The Labor Opposition really only seems to be concerned about the first (it would be hypocritical of the ALP to be concerned about the second, as it's more generous than the policy it took into the election, which was, roughly, designed to tax funds with more than $1.5 million).

(And the Greens? I'm sure they're secretly kicking themselves that they didn't come up with the policies themselves.)

Delays are creating more uncertainty

Why does this need to be sorted out so urgently?

Firstly, because of the utter confusion. While there is no law – and more importantly, while there are elements of the government saying they will vote against it in the party room or on the floor of the house – then should some be holding out hope the current rules will be maintained?

Second, to put a floor under the rock-bottom confidence in the superannuation system.

According to AMP-owned SuperConcepts, which looks after more than 3000 SMSFs, contributions fell off a cliff in the June quarter. They were down by around 38 per cent.

This is, most likely, predominantly due to the $500,000 lifetime NCC limit that came into effect on Budget night, in May, and many people not being able, or unwilling, to make their contributions with that uncertainty towards the end of the financial year.

Third, to provide certainty. If the government can't get certainty from its own ranks, is it going to have a serious shot at getting the contentious portions of the changes through?

Fourth, to stop an inevitable growing sea of anomalies that will accompany delays in making changes concrete.

For example, what about the super fund member who turns 65 in September? Potentially, they could have put $540,000 into super (under the three-year pull forward rules) before they turned 65. If the new rules aren't settled until December, they will have missed out. Will special exemptions be made for them?

People need to be able to make decisions and have some certainty about what to do with their money.

They certainly cannot afford to have it sent off to a committee for months, as Labor would like to do with the $500,000 lifetime non-concessional contributions (NCC) cap.

It really is only the $500,000 NCC limit and the $1.6m transfer-to-pension balance that needs to be decided (internally within the Coalition, it would seem).

But most of the changes are likely to go through, as they're agreed in full by all parties. And a good deal of the changes are highly positive and will be of great benefit to large numbers of Australians.

They're still big changes. And they can still be pretty confusing. If you want more information on those changes and how they might impact you, please join our new Adviser Q and A webinar on Thursday (August 11) at 12.30pm.

Click here to register for the webinar.

The information contained in this column should be treated as general advice only. It has not taken anyone's specific circumstances into account. If you are considering a strategy such as those mentioned here, you are strongly advised to consult your adviser/s, as some of the strategies used in these columns are extremely complex and require high-level technical compliance.

Bruce Brammall is managing director of Bruce Brammall Financial. E: bruce@brucebrammallfinancial.com.au . Bruce's new book, Mortgages Made Easy, is available now.