The deadline for major superannuation reforms is just around the corner, raising serious concern among many accountants and their clients.
By Nina Hendy
Time is rapidly running out for practitioners to incorporate the most significant superannuation changes for a decade into their advice to clients. Equally, their clients – whether families, individuals or small businesses – have only a small window left to accommodate any planned changes to financial strategies.
The reforms, introduced by the Federal Government in a bid to improve the fairness, sustainability, flexibility and integrity of the superannuation system, come into play on 1 July 2017.
Most of the measures will affect Australia’s 16 million superannuation account holders. Changes include:
An $80,000 reduction to the annual cap on after-tax super contributions;
Before-tax super contributions reduce to $25,000;
Commencement of the $1.6 million pension cap; and
Transition-to-retirement pensions lose tax-free status.
head of policy Paul Drum cautions practitioners that interpretation and implementation of the changes will be challenging. As such, getting a handle on their intricacy and what they mean to a practice and its clients needs to be prioritised.
“Practitioners shouldn’t underestimate the amount of work involved,” Drum warns.
“The clock is ticking and everyone needs to be concerned that there’s a whole raft of tasks to be undertaken ahead of the deadline.”
From a fund manager point of view, the changes will make super simpler, but administratively they will be complex to understand and implement.
Advising your clients
According to Drum, practitioners
should start by learning what the changes will actually mean and then group their client base into those who can potentially benefit in similar ways. The next step is to inform clients of the changes.
“Practitioners need to talk to clients about how these changes will impact on their super so they can take full advantage of the tax laws as they change,” he says.
“The changes are significant, and how clients choose to respond will vary. Also, the advice you give to clients is going to vary greatly depending on their individual circumstances, as well as the level of client engagement you have agreed to.”
He emphasises that practitioners have to be across the full spectrum of changes in order to tailor appropriate advice.
“These are going to be pretty serious decisions for your clients,” he says.
Maureen Allan, specialist superannuation adviser at Melbourne-based Morrows, shares Drum’s concerns about the industry’s capacity to review and manage the changes within the available time frame.
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“Practitioners are extremely concerned about the timing and their capacity to implement them,” she declares.
“This legislation only came into play last November and we’re only now getting guidelines about how the ATO will interpret it.
“I have real concern about how licensed practitioners and planners will ever be able to do all this work by the deadline. I know practitioners are scrambling to learn all this material, but there is just so little time.”
Licensed versus unlicensed practitioners
How practitioners approach the changes will depend on whether they are licensed.
However, material created for clients will need to be provided under a Statement of Advice – and again, preparing it takes time Allan says.
“We went to our entire client base and looked at who would need the advice in relation to the $1.6 million or close to it [broadly, the $1.6 million balance cap measure is a limit imposed on the total amount a member can transfer into a tax-free pension phase account from 1 July 2017] and we’re now in the process of meeting those clients.
“It’s so important that all superannuation is included in this calculation. For example, sometimes clients aren’t aware they’re with a fund from years ago and haven’t thought about receiving a small pension from it. These scenarios must be accounted for.”
Unlicensed accountants will also need to meet with clients and then refer them to a financial planner – “an appointment you should also attend,” Allan says.
“You’re better off being present because as at the end of the day, you’re the one that will need to implement the financial adviser’s advice.”
Financial planners will be like hens’ teeth
A key problem facing the industry is the shortage of financial planners with a capacity to handle the additional workload in time, Allan continues.
“Many are already booked out until June trying to implement changes for the early birds,” she says. “As such, most will now find it incredibly difficult to get an appointment.”
Allan, who sits on a liaison committee with the Australian Taxation Office (ATO), has communicated her many concerns to the regulator, explaining that a lot of practitioners haven’t even started the required process. She is awaiting feedback.
Another pressing issue relates to commutation, with a very small window on when practitioners will need to roll back funds that exceed $1.6 million. At the time of writing, guidelines around what the ATO will deem acceptable are expected by 30 April.
This, of course, leads to yet another issue, as practitioners will also need to keep minutes explaining their intent and include a valid methodology for all the changes, such as which pensions are being wound back and why.
“Resolutions and minutes are going to be crucial for practitioners handling this process and will give accountants a compass,” Allan maintains.
“Some accountants won’t be aware their clients could miss out completely on the CGT [capital gains tax] uplift, which came into play on 9 November 2016. This could inadvertently mean there is a small balance in accumulation, leading to the possibility of litigation, even though it could be dealt with incidentally.”
The ATO will issue letters regarding the $1.6 million cap this month, which Allan believes could trigger industry panic.
“The ATO is going to great lengths to explain how they’re going to interpret these changes, so the best place to start is the ATO website
,” Allan advises.
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