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(June-2004) Self-managed funds targeted in budget
A range of organisations have warned of significant implications for self-managed superannuation funds and for financial advisers, following the Government’s Budget night announcement about small and non arms length superannuation funds.
Under the measure, accumulation funds are required to allocate all contributions, and fully vest benefits in a given member; while defined benefit funds and funds providing defined benefit pensions will be required to have at least 50 members.
The change is being interpreted as targeting arrangements that avoid limits applying to tax concessions and social security means tests and that allow superannuation to be accumulated for estate planning purposes. It will also strengthen the prudential standards that apply to funds that provide defined pensions and benefits to ensure that these funds have the capacity to provide the benefits.
Effectively, self-managed and small APRA funds will not be able to run defined benefit pensions. They will only be able to run accumulation style pensions such as allocated pensions and the still-to-be released ‘growth pensions’.
Explaining the move, the Minister for Revenue and Assistant Treasurer, Senator Helen Coonan, says the changes aim to address schemes involving the forfeiture of superannuation benefits, contributions to reserve accounts, and the use of defined benefit funds and defined benefit pensions.
“These arrangements seek to maximise the concessionality of superannuation far beyond what was ever intended by Parliament by avoiding deduction and reasonable benefit limits, as well as the payment of the superannuation surcharge,” she says.
Coonan says the arrangement also provides opportunities for estate planning, allow significant assets to be shielded from creditors in bankruptcy, and even enable the wealthy to gain access to social security benefits.
“To address these activities, the law is being changed to require accumulation funds to allocate superannuation contributions, and fully vest these amounts to the member’s account,” she says.
Coonan says the Government has also acted to strengthen the prudential standards that apply to funds that offer defined benefit arrangements, including pensions, to ensure that these funds have the capacity to provide these benefits. These funds will be required to have at least 50 defined benefit members.
She says small funds will continue to have the flexibility to offer to their members account-based pensions such as allocated pensions and the new market-linked income stream.
Small funds will also be able to provide defined benefit pensions where these are purchased through a life company.
The Minister says the changes will not impact on existing defined benefit funds or existing funds paying a defined benefit pension.
AUTHOR
Mike Taylor
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