Indexation highlights system complexity

Indexation superannuation complexity

The potential indexation that will be applied to the transfer balance cap has again raised concerns over the complexity of the superannuation system.

The SMSF Association has reinforced its opposition to the added complexity the general transfer balance cap (TBC) indexation will bring to the superannuation system.

Reacting to the release of the December quarter 2022 consumer price index figure of 7.8 per cent, which confirmed indexation of up to $200,000 could be applied to the general TBC from 1 July 2023, and the flow-on effects this change will have, SMSF Association technical manager Fabian Bussoletti said it highlighted flaws in the current retirement savings framework.

To this end, Bussoletti noted the development had “the potential to cause confusion, mistakes and inadvertent cap breaches by superannuants and their professional advisers”.

Specifically, he noted the fact indexation of the general TBC will not only increase the general TBC but also the total super balance (TSB) thresholds dictating whether an individual can make non-concessional contributions, as well as the extent to which they can access the non-concessional contribution bring-forward provisions.

Further, he reminded SMSF Association members the TSB limits for other superannuation elements will be unchanged. These include having the recent retiree work test exemption remaining at $300,000, the catch-up concessional contributions staying at $500,000 and the disregarded small fund asset rule pertaining to exempt current pension income calculations still set at $1.6 million.

According to Bussoletti, the situation presents a good opportunity to highlight the industry body’s long-held position regarding two elements of the current framework, the first being a call for the simplification of TBCs.

“The indexation of the TBC on 1 July 2021 and now in 2023 has added further complexity to the superannuation system. The system has shifted from having a single cap of $1.6 million to individual caps ranging from $1.6 to $1.9 million causing confusion and increased costs across the sector,” he noted.

The SMSF Association has also led a push to reduce the number of TSB thresholds in play.

“The introduction of multiple TSB thresholds is unnecessarily adding to the complexity of the superannuation system. This is further compounded by the fact that some of these thresholds are indexed, while others are not. This has made it increasingly difficult for individuals to understand the superannuation system and their options,” Bussoletti said.

In addition, he warned advisers to be wary of any further legislative changes in the immediate future.

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