Get out your glossary! It’s a new acronym….LIEGC
October-19-2010Hello fellow super enthusiasts!
Firstly, thank you for tuning in again even though it has been a long time between posts. As always, the world of superannuation continues to take twists and turns and since the last post, not only do we have a newly elected Prime Minister (after a nail biting contest paralleled only by the AFL grand final) but also a new Minister for Superannuation, Bill Shorten.
The re-election of Labor means Australians should enjoy an increase of the superannuation guarantee from 9 per cent to 12 per cent. Other improvements to superannuation such as better use of the TFN, raising the SG age limit from 70 to 75, improving regulation of the industry and tax concessions for low earners can be expected.
The Low Income Earners Government Contribution – or LIEGC, another super acronym that rolls off the tongue – is a particularly important measure. For those of you who have not got every detail of the proposal etched into your mind, you can view Treasury’s fact sheet here. So, I can hear you asking why is this measure so important? Well, here are a few reasons:
- As a result of all super contributions being taxed at 15%, low income earners currently receive little or even no concession. Consider those in the 15% tax bracket…where’s the incentive to save via superannuation?
- Worse still, individuals in the tax free threshold, or with an effective tax rate of less than 15%, are penalised for contributing to super with 15% tax applied to their superannuation guarantee contributions.
- Higher income earners on the other hand, receive solid incentives to save via super, for example, if your marginal tax rate is 30%, getting taxed at 15% within the super system is a pretty good deal!
- This proposed measure has the potential to boost the retirement savings of 3.5 million low income earners by a tidy $830 million*.
Sounds good! However, the question is when and how these reforms will take place, particularly with measures such as SuperStream also in the pipelines.
Importantly, we as an industry can already implement the LIEGC measure with minimal fuss. The low income earners contribution could operate similarly to the existing Government co-contribution scheme where:
- Individuals file a tax return →
- The ATO connects the dots using contribution data already provided by funds →
- Funds apply the data file and monies supplied by the ATO to the corresponding account.
Sounds familiar doesn’t it?
Maximising efficient systems and processes that are already in place to their full potential is crucial, particularly when we are looking at implementing major industry and system reform, which we know is like renovating a house….sounds great but it is not easy or cheap.
So now it’s over to you! How would you advise our new Minister for Superannuation and Assistant Treasurer, Bill Shorten regarding funding and prioritisation of all these much needed changes, especially as the number of Australians at retirement age is expected to grow to 8.1million over the next 40 years?
*Source – Australian Government, Stronger Fairer Simpler A tax plan for our future, 2010
Hi Hans, I am not so sure that most parties involved in superannuation understand that many of the “goodies” offered by the Government are reliant on the Mining Tax going through to Fund them. I understand this to include the move to 12% SG contribution as well as the LIEGC. So with a Parliament in balance and an agry mining loby it will be fascinating to see how this all works its way out.
Thanks for the update Hans. Informative and entertaining! No advice for Bill at this stage. Speaking of Mr Shorten, that naturally leads me to the new PDS that will apply from 2012. I believe there was a meeting yesterday in Melbourne conducted by the Industry Super Network on this topic (perhaps you were there?), and that they are going to put out a template of the short-form PDS to help Funds prepare for the new regime.
Hi Peter
Good point (as always!) and you’re right (as always!); this is certainly going to be an interesting time in super….although all time in super is interesting if you ask me!
In terms of the increase to 12%, ultimately, employees will fund the rise as the suggested implementation time is s o l o n g that it allows the increases to be gradually built into pay rises. That being said, we’re not there yet! We still need the increase to be legislated and as you mentioned, the environment is quite interesting which makes it pretty important that other key changes, such as the SuperStream proposals for example, are not bundled up with everything else.
SuperStream is super critical to a super efficient super system…phew!
Yours in Super, Hans
Hi John,
Yes, you’re right! The Corporation Amendment Regulations 2010 (No.5) came into effect on 22 June 2010 and contains the details regarding the new short form PDS. This will apply from as early as 22 June 2011 if the PDS is for a new product or is being amended – this excludes Defined Benefits and pure pension products of course.
The short form PDS which I shall abbreviate to SPDS ….hang on, there is already an SPDS acronym – Supplementary PDS! Ok, so we will abbreviate this to SFPDS. The SFPDS is a good initiative and indicative of the efficiency gains we can achieve as an industry in collaboration with the Government. Cutting the document down in length will save both trees and printing costs whilst increasing member engagement. An eight page document is a lot less daunting than a 30 or 40 page one. Although, I have seen a PDS that consist of four different parts and is in total 198 pages long…
The development of the SFPDS involved a fairly heavy process of consultation and thanks to this, what we should have when we actually see them rolling off the press, is a much shorter and easier to read document. Coupled with the implementation of MySuper, the industry should start to look and feel a little more user friendly to members….who knows, a member may even read and understand a PDS!
I’m interested in hearing other views about the SFPDS, has anyone started putting one together? Estimated cost savings? Other thoughts?
Yours in Super, Hans
One more thing! ASIC has completed its review of a range of PDSs (including super ones). ASIC Commissioner, Mr Greg Medcraft, made a comment that the review highlights the need for PDSs to inform consumers on the trade-off between risks and potential returns for specific investments or options, rather than just giving an overview of investment risks. If you want to read the whole report – bit of bed time reading perhaps – you can find it here (REP 214).
Yours in Super, Hans
Hans, I attended an ASFA Discussion group on the SFPDS yesterday. One of the participants, ESI Super is about to launch thier SFPDS however, AustSafe who was also in attendance, said they had received advice from ASIC that you cannot launch the new version prior to 22 June 2011. There was much debate around this restriction, e.g., if it is such a good idea, why stop funds from putting it out sooner rather than later. I believe ASFA may be asked to take this issue up with ASIC. In regards to our clients, I believe MTAA may be some down the track in developing their SFPDS.
Hi Hans, my client is making a start on the SFPDS. It seems the real trick is to have all the protocols in place on the website. This bit is essential as the SFPDS is a “by reference” document and as such all documents refered to need to properly dated and archived.