The much anticipated 2015-16 Federal Budget was handed down last week and the good news for super funds and wealth administrators is that the impacts are fairly minimal. That said, it remains highly likely that further reforms are on the horizon, but I’ll come to that later.
Firstly, let’s sift through the detail and identify the budget measures that have the potential to impact the industry and, in turn, administration systems. In doing so, it is important to bear in mind that until each measure passes through the Senate and into legislation, there’s no requirement for businesses to make any system changes in the short-term.
Budget measures affecting superannuation were relatively minor. Most notable were changes to lost and unclaimed superannuation, aimed at reducing red tape for superannuation funds. From 1 July 2016, the Government plans to remove redundant reporting obligations and streamline lost and unclaimed superannuation administrative arrangements, although the specifics remain unknown. Should these measures pass into legislation, they will require a system update. In the meantime, Bravura Solutions will continue to monitor these changes and keep readers informed as more details come to hand.
The Budget also includes two other superannuation related measures. It relaxes the criteria for the release of superannuation for a terminal medical condition, from 12 to 24 months, and also increases the supervisory levies paid by superannuation funds to APRA. Neither of these measures will require system changes.
There were a number of Budget measures relating to the age pension, including:
- age pension indexation to remain unchanged, a reversal of the 2014-15 budget initiative
- changes to age pension asset test thresholds, with the minimum threshold increased and the maximum threshold decreased
- introduction of an income deduction cap of 10% in the social security income test for defined benefit income streams
- pension income test free areas and deeming thresholds to remain unchanged, a reversal of the 2014-15 budget initiative.
Given that two of these measures involve retaining the status quo, while the remainder involve relatively simple changes, there is nothing too onerous here for super funds and wealth administrators. From a system administration perspective, none of these measures will require system updates.
Outside changes to superannuation and the age pension, there were just a few other measures of specific interest to the sector.
Most notably, the Budget provides administrators of Managed Investment Trusts (MITs) with a 12-month transition period for the application of the new, modernised MIT tax rules. The previous deadline of 1 July 2015 has been extended until 1 July 2016. Once the new tax system becomes operational, it is likely that some changes may be required to Bravura systems. Any system updates will involve close consultation with our client base. We also anticipate that the new MIT tax system may lead to subsequent updates to the Annual Investment Income Report (AIIR) in 2016.
Other Budget measures of note include the:
- restoration of banking and life insurance unclaimed provisions, a reversal of 2014-15 budget initiative
- introduction of a Serious Financial Crime Taskforce to address financial and tax fraud
- provision of statutory remedial power for the Commissioner of Taxation.
Once again, minimal if any action is required here on the part of super funds and wealth administrators in response to these measures, and none are expected to require system changes.
So while the superannuation and wealth administration industry is breathing a sigh of relief that there were no adverse changes in this year’s Federal Budget, the reprieve is destined to be short-lived. When you consider the bigger picture, there is every indication that there will be further regulatory change in the years ahead.
Recommendations stemming from the Financial System Inquiry, the Intergenerational Report and the Tax Reform White Paper are very likely to result in the Federal Government tabling a number of additional reforms to superannuation and retirement income streams in coming years, as part of their policy agenda.
Bravura Solutions will continue to monitor developments in this area and keep our clients informed about potential legislative reforms and their future impact on Bravura systems.
Moving forward, the key message for super funds and wealth administrators is “watch this space”.
If you would like to read a more detailed analysis of the 2015-16 Federal Budget measures from an administration system perspective, please click here.