Superannuation in 2024: what you need to know

Garreth Hanley:
This is With Interest, a business, finance, and accounting news podcast, brought to you by CPA Australia.

Simon Downes:
Hello and welcome to With Interest. I'm Simon Downes. It's shaping up to be an important year of policy debate and regulatory changes in respect to superannuation. The way that Australians plan and save for retirement is high on the political agenda, as well as when and how we can access our retirement savings earlier in life. There's a lot happening, and it can be hard to keep up. Fortunately, we're joined today by CPA Australia's resident expert in this area, Richard Webb, who's our superannuation lead. Richard, let's talk through the hot topics of debate in superannuation this year. I also want to get your thoughts on what people can do to help grow their retirement nest egg this year, but let's start with what's coming up in 2024. Welcome to With Interest, Richard.

Richard Webb:
Thanks, Simon, and thanks for having me.

Simon Downes:
Let's start with a mention of the upcoming changes to the first home super saver scheme announced back in the federal budget of 2021, but now coming into effect from September this year. The changes are said to improve the experience for first home buyers accessing the scheme and would allow for greater flexibility by increasing the discretion of the commissioner of taxation to amend and revoke first home super saver scheme requests, by allowing individuals to withdraw or amend their requests prior to them receiving a scheme amount and allowing those who withdraw their request to reapply for the releases in the future. Also, by confirming the commissioner can return the release scheme amounts to super funds, provided that the money has not yet been released to the individual, and clarifying that the money returned to super funds is treated as funds non-accessible non-exempt income and does not count towards the individual's contribution caps. Richard, how significant are these changes? How will they impact first home buyers? Give us your thoughts about what's coming.

Richard Webb:
Thanks, Simon. Look, it is actually quite a large change for this policy. Essentially, up to September, the first time super saver scheme has been criticised by some for being inflexible, and this has meant that new home buyers who rely on any releases under the scheme have needed to get things 100% correct. Obviously, this is only going to be the case in some instances. The changes will have the effect of improving the flexibility of using this scheme, particularly where something happens which affects a property settlement, or if a super fund member was to make an error on their withdrawal application. Additionally, it means that if a sale doesn't go through for whatever reason and the fund member hasn't received the funds, they can ask the ATO to credit the funds back to the super fund sight unseen. This gives them another go in the process in the future and avoids long instances of time out of the market.

Simon Downes:
Let's get an update on the better targeted superannuation concessions bill amendment that the plans to reduce the tax concessions enjoyed by Australians with the largest super savings by doubling the tax rate from 15 to 30% on earnings from superannuation balances in excess of $3 million. We've raised concerns about the fact that the $3 million threshold is not intended to be indexed, which means that a lot more people than just the current highest earners will be impacted in the future. Give us an update on how things are progressing.

Richard Webb:
Sure. I mean, the bill is presently in front of parliament, and I should mention at this point that the Senate Economics Legislation Committee is presently reviewing this bill, and we plan to lodge a submission in response to that inquiry. We obviously have some concerns in relation to the bill. It is important to note that the proposed increase in the tax rate for balances over $3 million is not quite how it is presented. Our members would know that the ordinary fund earnings tax is levied at 15% on fund income, and this includes realised capital gains, after capital gains discounts and capital losses have been applied, of course.

Obviously, exempt pension phase income also has a tax rate of zero. But how the new tax will work is that the ATO will look at the balance at the start and the end of the financial year, examine the difference, and if it is positive, charge a 15% tax on that movement after adjusting for any contributions or withdrawals. Essentially, this imposes a tax on unrealized capital gains. Additionally, it means that if you have missed a year of the additional tax due to negative earnings, you cannot get that benefit back until your super starts posting positive earnings again. We don't support this as retirees may, as they draw down on their super, end up paying more tax than what they would have had only realised capital gains been included. Finally, the $3 million figure is not set to be indexed. This makes it something of an anomaly since most other limits and thresholds are indexed. Super is a long-term thing. People shouldn't find that they are penalised in the future for what inflation has turned into a small balance.

Simon Downes:
The timing of the bill is significant because it comes at the same time that the government is seeking to define an objective of superannuation. We've discussed this before, but give us a quick update on the objective of super and where things are standing.

Richard Webb:
Well, that's right, Simon. That bill, by the way, is also presently in front of Parliament, and as we speak also in front of the same senate committee who's looking at the bill that we just discussed. The proposed objective of superannuation is to preserve savings to deliver income for a dignified retirement alongside government support in an equitable and sustainable way. We support the need for an objective of superannuation, but we also note that there are issues in relation to this proposed measure. The first thing to remember is that this is really only intended to provide a series of guidelines to look at legislation and regulations though. Does it comply or doesn't it? That sort of thing. It won't, however, prevent legislation which is not consistent with the objective being passed by Parliament.

There is also that. We have noted that this is only to apply to super, but retirement is so much broader than that. This will still not deal with the fact that retirement in Australia is not just superannuation, it's also the age pension, the family home, aged care, and non-super savings. We really need an overarching objective to the retirement income system, which this one can slot in underneath. Can I also mention though, Simon, as an example of where all these interact is in relation to the new $3 million threshold? There are a variety of limits already in place, some hard, some soft, and these limit how much money folks can get into super and how much they can get into the retirement phase, which, as I mentioned before, is, yeah, exempt from tax. But in addition to that, there are means tests and age restrictions on the age pension. It would've been good to consider how each of these interact and shape the kinds of retirement savings Australians can get in a harmonised way, and an overarching objective of the retirement income system would've assisted with that.

Jacqueline Blondell:
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Simon Downes:
Richard, I know that another area of focus for you has been the issue of payday super. As it stands from July 2026, employers will need to pay super on payday rather than quarterly, making it easier for workers to track when their super is not being paid. The changes are also said to reduce the risk of unpaid superannuation debts as a consequence of companies collapsing into bankruptcy. But the change is not without its challenges, and you've been involved in highlighting these. I know it's a complicated issue, but run us through our views, where we stand on payday super currently.

Richard Webb:
Thanks, Simon. This is a very complicated matter, so I'll try to keep this brief, because we can go down all sorts of rabbit holes with this question. Look, forgive me if I only touch the surface, but essentially, there is a lot involved in paying super contributions to begin with, let alone every payday. Currently, employers have to have the correct fund information from their employees. They have to want a choice of fund and they have to observe the stapling rules. On top of this, the current rules require employers to know if funds are capable of taking contributions. This lands an employer with a convenient period currently at the end of the quarter, where they can check all this stuff out to get it right, but the new requirements will need this data to be correct all the time. For new employees, this can be interesting for a number of reasons. Employees can get their super fund information incorrect, stapled funds can still be unable to accept contributions, and on top of this, most employees will only know for half their payroll data, which is actual ordinary time earnings. This is the part that the superannuation guarantee is assessed against.

The government, for its part, is promising an almost real-time tracking of employee contributions. But this can only, at this stage, extend to the following situations, superannuation guarantee amounts, contributions made to APRA-regulated funds, and a necessary delay due to how current payment and reporting infrastructure works. Even APRA-regulated funds have limitations if they are administering defined benefits. As for members of SMSFs, we don't really know how any kind of real-time monitoring can look for these since the existing contributions reporting frameworks for these funds relies on annual reports, which can be submitted to the ATO 11 months after the end of the financial year, in which contributions were made. So, there are a lot of moving parts. Naturally, we are trying to get our hands on as much information as we can since there is now only a little over two years to make this work.

Simon Downes:
We are probably past the time of talking about New Year's resolutions now that we're into February, but when it comes to taking care of your retirement nest egg, it's never too late to invest some time and make some positive changes. I know that you are passionate about suddenly influencing policy that helps Australians plan effectively for their retirement and making the most of their retirement savings. If we can go over some of your best tips for improving your super balance in 2024, that would be really great. What comes to mind?

Richard Webb:
Well, I guess, Simon, you are correct that it's never too late to do some work on shoring up your retirement balance. Being February, this is probably as good a place as any to start. I suppose the first thing to note is that over the course of the past year, we've had some large inflation. I think it is important to remember that a lot of rates and thresholds that are important in building up one's superannuation savings are linked to an inflation measure of one sort or other. This means that we expect that the new financial year is likely to see an increase in things like contribution caps or the total superannuation balance limit. I should also add that I'm not a financial advisor and can only offer general information only. My first proper tip and my best one is to see a financial advisor to see how you can improve your situation. That said, for those of you who are not near any contribution limits just yet, you've still got another four months to contribute.

There are a variety of ways you can do this. You can make contributions yourself directly to your fund. You can get your employer to make contributions on your behalf, deducted from your take-home pay, and you may even be in a situation where you can contribute on behalf of a spouse, or have your spouse contribute to your super. If you get your employer to make additional contributions, they might ask you whether you would like to make these before tax, which is often called salary sacrifice contributions, or whether you might wish to make contributions after tax. Salary sacrifice contributions can have benefits for your overall tax position, but how much you can contribute is affected by your concessional contributions cap, which has set at a quarter of your non-concessional cap. Since your normal superannuation guarantee contributions also count towards your concessional contributions cap, you will need to carefully consider how you undertake contributions through your employer. Another thing that you consider is a little bit of housekeeping. When was the last time you looked at your funds to see if it is working hard for you? This can be a tough job.

Some funds have thousands of investment options. Picking out the one that is good for you at your fund can be hard enough, but looking at other funds can make this job overwhelming. This is before you get to looking at fees, costs, insurance, and all the other features that you might wish to look at at a fund. Even if you're in an SMSF, you can always benefit from looking around occasionally. Setting aside some time every now and then for looking at these can mean the difference between a comfortable retirement and a modest one. This is also a good time to double check that you don't have forgotten super lying around. The ATO's part of the myGov website can insist here, since it is able to report on most of your super that has been matched to you. These lost funds may even prod you into action. Finally, you should review your insurance frequently. If you're over insured, you will end up with too much in the way of annual premiums being deducted from your super funds. If you're underinsured, you may not be getting what you need if you die or injured.

Simon Downes:
Well, thanks, Richard. That's very helpful, and once again, good to go over this year's main talking points in super. I'm sure we'll revisit these later in the year and see how they're progressing. That brings us to a close for today. Thanks very much to our guest, Richard Webb. See the show notes for a link to additional information on the first home super saver scheme if you'd like to know more about that. From all of us here at CPA Australia, thank you for listening.

Garreth Hanley:
You've been listening to With Interest, a CPA Australia podcast. If you've enjoyed this episode, help others discover With Interest by leaving us a review and sharing this episode with colleagues, clients, or anyone else interested in the latest finance business and accounting news. To find out more about our other podcasts and CPA Australia, check the show notes for this episode. We hope you can join us again for another episode of With Interest.