The Turnbull government have have to delay the implementation of the plan to tax transition to retirement income streams (TRISs) which is part of the superannuation reform package currently before parliament.
The Association of Superannuation Funds of Australia (ASFA) has made the call in its submission to the Treasury on the super reform legislation and says there needs to be a 12-month delay on the introduction of TRIS to July 1 2018.
ASFA also says the costs of the raft of super changes, including the introduction of a transfer cap on balances of $1.6 million, will run into millions of dollars for funds and place a heavy burden on their compliance budgets.
The submission, filed with the Treasury late last week, says the TRIS budget measure “presents a fundamental shift away from the way in which pension products have been built and currently operate”.
The submission identifies examples of funds detailing why the measure will costly to implement:
- one large fund has estimated that this measure alone will account for approximately two- thirds of their total compliance costs for the entire package;
- another large fund has indicated that its high level costing are that this measure, as currently drafted, will cost between three and five million dollars to implement;
- another large fund has indicated that a conservative estimate of their implementation costs is a minimum of two million dollars.
Funds have observed that, from an overall fund perspective, the cost of implementing the TRIS reforms is disproportionate to the number of members who have a TRIS in place.
“In particular, current registry systems, fund accounting, unit pricing and tax return processes generally were not developed to manage an earnings tax on an individual’s pension assets, as earnings on all pensions were tax free,” it said
“Funds will have to segregate their TRIS members from other members receiving income streams and may need to restructure their arrangements with respect to the underlying assets and rebuild their tax engine.”
The submission said some funds would need to to build systems to track earnings in the fund against each member, aggregate them and tax them at 15 per cent “which, given the number of investment options, will prove to be a complex and time consuming operational build”.
“A number of funds have indicated to us that they believe it will take them between 18 and 24 months to make the necessary system and process changes to be able to administer this change,” the submission said.
“The alternative — to close their existing products — would take at least nine months to complete.”
ASFA suggests alternative arrangements to make the new system workable:
Two possible alternatives approaches to the TRIS changes that could be considered could be that
- the 15% tax offset for income paid to the member from a TRIS could be reduced for those members under 60. This change is significantly simpler for funds and would dramatically decrease implementation costs.
- the measure could be applied prospectively. This would enable funds to close their existing TRIS product to new members and either to:
- not offer a new TRIS to members after 1 July 2017 or,
- offer a new TRIS from a later date, once the system has been developed.