With an election now called, the Association of Financial Advisers (AFA) is urging advisers to tread carefully in relation to changes announced in the 2016-17 Federal Budget (the Budget) handed down by Treasurer Scott Morrison on 3 May.
The Budget heralded changes that, if legislated, will significantly impact some of the financial advice strategies currently in place with some financial advice clients, as well as almost requiring “double” advice for future strategies.
AFA Chief Executive Brad Fox said uncertainty in areas like Non-Concessional Contribution (NCC) limits, that have a retrospective element to them, means advisers must tread very carefully in providing advice until a new Government is formed and the Budget measures are either passed or denied.
“We can foresee a number of advice situations where an adviser may have to explain to a client that the advice they give may change, depending on the outcome of the election,” he said. “This may mean saying something like – ‘if the measures announced in the Budget are adopted, then my advice to you is X, but if they do not become legislation then my advice to you is Y.’”
Mr Fox says the most significant short term impact will be on advice which requires decisions to be made or actions to be taken between now and 30 June because there will be no legislative certainty in this time period.
Just as importantly, Mr Fox says advice strategies already in place with existing clients that require NCCs to be made from Budget night will also need to be reconsidered if an individual’s contributions, including those backdated to 2007, will exceed the $500,000 NCC cap.
“Advisers need absolute clarity on the client’s NCC since 2007 before allowing any further NCCs to be made. The suggested penalty consequences of getting this wrong are too large to ignore,” he says.
Existing client advice strategies that don’t maximise a client’s Concessional Contribution caps this and next financial year in favour of, say, debt repayment, will also need to be rethought.
“The reduction in Concessional Contribution caps back to just $25,000 from 1 July 2017 will certainly have an impact on baby boomers, particularly those juggling debt repayment alongside accumulating sufficient funds into super for retirement,” he says.
The AFA has produced a detailed Budget Fact Sheet.
Source: AFA
