While last year’s possible reforms were not addressed, Heffron had also tipped the budget to be a good opportunity to start making some changes, as none of the current issues affecting SMSFs are going away and will only pile up.

Speaking at BT technical webinar, head of technical services Bryan Ashenden said that in this year’s federal budget, there is potential to see changes in reducing the complexities in super caps and thresholds and one of the first things that need to be addressed is the intricate transfer balance cap which has greatly affected the SMSF industry.

“There’s been a couple of suggestions put forward because of the many complications that arise out of issues from the individualised transfer balance cap arrangements,” Mr Ashenden said.

One of the suggestions is to not index it at $1.6 million for everybody and leave that being the figure that is set, according to Mr Ashenden. Another option is that it could be set at $1.7 million for everybody. As a result, it doesn’t matter when and how much the fund started with, as everybody gets that value of the extra $100,000 of indexation coming through.

“The third option that has been proposed to the government is essentially a ‘you get what you get’ type of arrangements which really means that if you start drawing an income stream when the general transfer balance cap is $1.6 million, then your cap is only ever at $1.6 million,” Mr Ashenden said.

“If you don’t start until it’s at $1.7 million, then you’ll have a $1.7 million threshold, so there’s no individualised indexation; it’s you get whatever the limit happens to be for the financial year when you first have an amount assessed to your transfer balance cap.

“All of those in a sense all have their benefits and they all have their negative side of things, too, and they’re all the main options that have been put to the government.”

Mr Ashenden noted the possible changes to the transfer balance also come as there are increased considerations on aligning and simplifying superannuation thresholds and criteria.

“At the moment, we’ve got a transfer balance cap, total superannuation balance thresholds which are going from $1.6 million to 1.7 million, but also the proportional indexation on your transfer balance cap,” he noted.

“We’ve got a $500,000 cap that applies for the carry-forward concessional contribution. We’ve also got that $100,000 cap that comes into place for that one-off ability to make a contribution without the need to meet a work test once you’ve passed that relevant age; currently, that’s age 67. With all these thresholds, the question is, should we start seeing some of these things be aligned?”

There are also other questions that often come up around seeing some form of arrangement between preservation age, retirement age and the age pension age.

“We’re seeing the age pension age moving from 65 to 67 and we’re seeing preservation age now gradually much closer to now being at the age 60, but retirement age is still at 65 which used to be aligned to the age pension age,” Mr Ashenden noted.

“In this case, should we start to see the age 65 retirement age move up towards age 67 over a period of time, and should preservation age stay five years before age pension age, as it’s currently going to be the case, and can there be some form of alignment and simplification between those measures?”

Broader super changes in response to Retirement Income Review 

While measures to reduce complexities may be part of the changes, Mr Ashenden noted taxation is always potentially on the cards as the government’s response to the Retirement Income Review continues to play out.

“It’s speculation and we know there’s a whole lot of talk about it at the moment, but we’ll need to wait and see how the government responds,” Mr Ashenden said.

One of the issues that came up through the Retirement Income Review was around the taxation of super and whether a 15 per cent tax rate is appropriate, or is it better for super to be taxed at a marginal rate less than a 15 per cent offset.

“Again, this is a different way to bring it through and perhaps address some of the inequality of the taxation of super balances between higher-income earners and lower-income earners,” he said.

Another emerging issue that came through the Retirement Income Review is around equalising super, and Mr Ashenden noted, when looking back at one of the major issues called out in the review, it is the disparity or the differences in retirement balances between males and females.

Mr Ashenden said there are different ways to approach equalising superannuation arrangements, but it ultimately depends on the way the government could respond to some of the findings of the Retirement Income Review and the approach adopted by the government.

“There could be changes in contributions. We’ve seen in the past that you could treat a couple as a family group. For example, let’s take $1.6 million for each member of a couple and let’s combine it to $3.2 million or $3.4 million when basing it around indexation figures,” he said.

“While there are spouse contributions splitting in place at the moment, it is limited in terms of how much you can actually do with it, so is it possible to allow for a greater level of superannuation splitting?

“Is there also a different way to deal with cap space where if you’ve got someone who has got a significantly higher balance, instead of transferring the super from one member to the other, can we transfer the available cap space from the person with a lower balance to the member with the higher balance?”