Government tinkering with superannuation proving costly

Continued legislative tinkering to the superannuation system is forcing individuals to abandon super and self-managed super funds, leading to $16 billion not being placed into SMSFs, according to research published this week.

The research by the SMSF Professionals Association and Russell Investments found that as a result of lower contribution caps and continued changes to super, 54% of SMSF trustees would change the decisions they are making currently about their strategies towards their retirement.

Launching the research, SPAA chief executive Andrea Slattery said, of those who would change, 75% said they would invest in things other than super.

“That would be outside of super, not inside of super, and so that leads towards $16 billion not being placed in the superannuation system in this last 12 months,” she says.

“It shows there are big numbers in the SMSF sector which are mainly professionals, small business and the self-employed that are not putting money into super and if they are not putting it into super they are putting it elsewhere or spending it.”

Slattery says negative gearing has been the main benefactor of the movement out of superannuation, with confidence amongst SMSF trustees low.

In July last year the amount of pre-tax income people over the age of 50 may put into super each year was halved to $25,000.

Trustees now have to deal with legislative risk, according to Alan Schoenheimer, chief executive of Russell Investments in the Asia Pacific.

“I think trustees are learning a new risk called legislative risk, which they used to ignore in the past but now it is becoming clear this is a major dilemma,” he says.

“You put your money into the system and once it is in it is locked in, and you can’t reverse that decision, and now it is there for the government to raid.”

Schoenheimer says 10 or 15 years ago people were encouraged to contribute more than the required amount into superannuation and they were given incentives to do that and told it was a good thing.

“It is in a system where you can’t hide it by the way, it is there for all to see and Australian Prudential and Regulation Authority or the Tax Office or someone have your statistics and can look at it all the time and you can’t hide it out, you can’t get it out and all of a sudden the rules change.”

“I would have thought there were a lot of angry people right now.”

This article first appeared on Smart Company.