Please note: This is an amended and corrected version of an article originally published on May 5 at 05:15am
I don’t mind any government making changes prospectively; however, the retrospective changes in Tuesday night’s budget are significant and immoral.
Rational investors who make investment decisions within the legislative arrangements of the day should not have to unwind them up to nine years down the track.
I have advised thousands of clients for more than 30 years on the best way forward for them, given the law at the time. Never have I been confronted with such stupidity in a retrospective change which forces clients to abandon plans which have been based upon the rules of the day.
Whilst we financial planners know that the implementation process of a financial plan can take several years, especially when families downsize properties or small business are involved, it is obvious others do not.
I don’t think Scott Morrison or Malcolm Turnbull are stupid; nor do I think that they do not care about self-funded retirees. However, I do think they have overlooked the fact that the financial planning process is not something that can be implemented overnight.
Could you imagine the outcry if a planning permit was issued for a building, and then without warning the relevant authority advises that the building does not comply with new rules announced after the building process has commenced?
Without fear of change
Where rational investors weigh up the pros and cons of a particular strategy, they must be allowed to implement the original strategy without fear that the law will change mid-stream and leave them out of pocket.
For example, it is immoral for a prospective self-funded retiree who incurs a capital gains tax liability by selling property to top up their super fund, to overnight face the dilemma of paying a penalty tax if they continue to make the non-concessional contributions that were within the contribution caps the night before.
Is Scott Morrison planning to compensate those Australians for the capital gains tax and other costs that they incurred in the implementation of their financial plan?
Governments have an obligation to advise all Australians planning for their future of any significant changes to the superannuation environment well in advance, and not suddenly pull the carpet from under them, especially during the implementation stage.
I call on the Prime Minister to honour the non-concessional caps that have been in place for the last nine years, and to allow honest law-abiding prospective self-funded retirees, and others, to finish implementing their pre-retirement plans, by introducing a phase-in period of at least 36 months.
Whilst I don’t like the retrospective nature of the $1.6 million maximum retirement account cap announced in the budget, the cap itself is far low and it would appear that the Treasurer has been “sold a pup” by Canberra-centric thinkers.
In the Budget the Treasurer announced that superannuants in a defined-benefit pension plan (usually politicians, public servants or those who worked for large corporates) can enjoy a guaranteed income stream of up to $100,000 a year, indexed for life, without being affected by the new retrospective changes.
The cap is way too low
However, armed with a $1.6 million super account balance today, a 65 year old risk averse male would be lucky to secure income of approximately $67,000 a year for life, if he bought such an unindexed guaranteed income stream, or about $53,000 a year if the guaranteed income stream was indexed to the Consumer Price Index.
I’d like to be able to offer my clients a $100,000-a-year guaranteed income stream indexed to the CPI for $1.6 million, but unfortunately it is simply not possible!
I just hope Scott Morrison and Malcolm Turnbull wake up and listen to real advisers who work diligently within the law to assist self-funded retiree and other clients with medium sums – not those with tens of millions or more.
Unless they introduce a phase-in period, financial planners will have to advise clients that the laws we abided by over the past nine years have been changed overnight, and the government couldn’t give a tinker’s cuss about the cost our clients will incur in complying with the new rules.
