The next 12 months are shaping up to be significant for superannuation and for financial planning, with new rules either set to come into force or open for consultation, says Chartered Accountants Australia and New Zealand’s superannuation and financial services lead Tony Negline CA.

Pictured: Tony Negline CA

The 45% super tax trap

A new law – the non-arm’s length provisions for superannuation – could destroy Australians’ retirement incomes if it comes into force, says Negline.

“The government has a consultation paper out and it’s very controversial,” he says. “CA ANZ and other associations are trying to get the government to amend the law. It’s been an ongoing matter for the last three or four years.”

At present, super funds pay 15% tax because of the long-term nature of their investments. As the new law is written, the tax could easily increase to 45%. “That’s like you are earning A$200,000 a year, so it’s not fair and we are trying to get it changed.”

Super funds rewarded for short-term success

It’s not just the proposed tax increase on super keeping CAs up at night. The Your Future, Your Super policy brought in performance testing for retail super funds and is also currently under review.

While Negline says performance testing is a good idea, the review should also introduce incentives for funds to invest for the long-term benefit of all Australians.

“At the moment, the rules only reward funds for investing successfully in the short-term and that’s not realistic when it comes to the retirement futures of Australians,” he says.

For the average Australian who begins work in their 20s, spends 40 years in the labour force and then another 20 to 30 years in retirement, funds investing for a 70-year time frame is the only sensible path to take, he says.

Negline expects legislation to reflect this renewed emphasis on long-term super investment will be introduced in the next 12 months. “We need to be able to measure these investments much better and we have to find people who can make those investments.”

How do we make financial advice affordable?

Financial planning is also the recipient of renewed government focus, in the form of the Quality of Advice review. The aim is to reduce red tape and rules in the financial planning sector, allowing more Australians to access quality advice.

As it stands, says Negline, getting good quality financial advice costs around A$4000 to A$5000, but the average Australian only wants to spend A$500. There’s too much overhead in financial planning and it must be reduced to address the value mismatch, which is what the review is seeking to do.

“We’re hoping to see some changes come in by 1 January next year,” he says.