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$3M super cap to affect 1 in 3 SMSF advice clients: Investment Trends

Approximately a third of SMSF holders under advice will be hurt by the new cap on discounted superannuation balances, the researcher says. A bump in the TBC cap will help some, but add to complexity for advisers.

Self-managed superannuation fund advisers are in high demand as members navigate the latest round of changes to fund rules, with the new $3M cap on concessionally taxed super set to affect one in three clients according to fresh data from research firm Investment Trends.

The proposed cap, which would increase the headline tax rate to 30 per cent from 15 per cent for earnings on any part of an individual’s super balance that exceeds the $3 million threshold, is set to take effect on July 1, 2025.

Despite being over two years down the track, the changes have already prompted 24 per cent of SMSF holders to actively initiate discussions with their advisers about it, Investment Trends reports.

  • In contrast, only 2 per cent of SMSF clients have initiated discussions with their adviser about how to handle the scheduled indexation increase in the transfer balance cap from $1.7m to $1.9m, which is set for July 1, this year.

    According to Investment Trends head of research Irene Guiamatsia (pictured), finding the most tax efficient way to manage large superannuation balances is taking precedence among trustees.

    “Fast changing regulation has exacerbated the complexity of the superannuation system and continues to pose a great challenge for SMSFs”, Guiamatsia said. “Our research tells us advisers are anticipating the indexation of the transfer balance cap as having the greatest impact, however investors themselves are actually more concerned with the $3m cap proposal.”

    Too low a bar

    SMSF industry groups and advice associations have criticised the $3M cap plan, labelling it unsustainable in its current form and discriminatory to SMSFs.

    In its submission to the proposal, SMSF Association CEO Peter Burgess pointed out that while the proposed model was designed for members of APRA-regulated funds, three quarters of the estimated 80,000 members affected were in SMSFs.

    “The lack of equity and unintended consequences arising from the proposal are driven by a desire to placate the large APRA funds – a clear case of the ‘tail wagging the dog.'” Burgess said.

    According to the Australian Shareholders Association, it would be simpler, fairer and make more sense for the cap to be indexed to inflation.

    “The continued ad hoc changes to superannuation reduce the confidence of self-funded retirees and those who aspire to be self-funded in the future,” ASA CEO Rachel Waterhouse said. “The way of introducing this policy is scaring superannuation builders out of holding higher balances where they are able to restructure their affairs to do so.”

    A cap of some sort is reasonable, Financial Advice Association of Australia CEO Sarah Abood argued, yet $3M is too low a target.

    “We are open to the principle that those with very substantial superannuation balances would not have unlimited access to the tax concessions on superannuation earnings,” Abood said. “However, we have reservations about the impact of some of the proposals, and any unintended consequences.”

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