of these are grouped under a Protecting Your Super package. Lost Super. Australia has always had too many superannuation
Hot from the 2018 Budget Lock Up The government has aimed to be fiscally responsible targeting a return to Budget surplus a year earlier than expected last year. It has also provided personal income tax cuts for those earning up to $87,000 and a path for more cuts over the next five years. The government has capped annual taxes at 23.9% of GDP. While the target is manufactured, it does provide a benchmark for measurement of future Budgets. After a relatively benign Budget for superannuation last year, the government introduced several measures this year. These will have a significant impact on group life insurance, which can expect a drop in overall premium income and on funds and administrators which face fee reductions. The group insurance premiums could reduce by $3 billion a year. Overall, there were limited changes in other practice areas. The issues that may be of most interest to actuaries are detailed below. All the papers can be found at www.budget.gov.au.
Overall Economy The government believes that net debt has peaked this year at 18.6% of GDP and it should fall to 14.7% in four years, partly due to continued growth in GDP. The underlying Budget deficit is estimated to be $18.2 billion (1.0% of GDP) in 2017-18, which is less than half the amount two years ago. It is expected to fall to $14.5 billion in 2018-19 (0.8% of GDP) and is projected to return to balance (modestly) in 2019-20. The Treasurer believes there is a clear and growing consensus that the global economic outlook is improving. Below are some forecasts for the major economic parameters. ► Real GDP grew by 2.1% in 2016-2017 (a good increase as it was expected to be 1.75% last year.) It is expected to be 2.75% in 2017-18 and to pick up to 3% a year thereafter. ► Consumer Price Index is forecast to stay at 2% in 2017–18 increasing to 2.25% in 2018-19 and then staying at 2.5% from 2019-20. Last year’s forecasts were the same. ► Wage price index is expected to move in small steps annually from 1.9% in 2016-17 to 3.5% in 2020-21. ► The unemployment rate is forecast to reduce from 5.6% in 2016-17 to 5.5% in 2017-18 and then further reducing to 5.0% in 2021-22. Total revenue for 2017-18 is expected to be $445.1 billion, (a healthy 1.8% above MYEFO) with expected revenue of $473.7 billion for 2018-19, an increase of more than 6%. Page 1 of 6
See Budget Paper 1 page 5-15
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Key Areas of Interest to Actuaries Superannuation The impact of the 2016 Budget changes which curtailed many concessions, together with buoyant markets (and higher capital gains tax), have led to a 34.1% increase in overall superannuation taxes for 2017-18 (to $11 billion). In keeping with the last 35 annual Federal Budgets, there are more changes in super! Many of these are grouped under a Protecting Your Super package. Lost Super Australia has always had too many superannuation accounts. These peaked at about 32 million four or five years ago and are now about 27 million. Many members do choose to have two accounts, perhaps for insurance reasons, transition to retirement (where they have an accumulation and a pension account) or where they have a defined benefit account from previous employment. However, there is a lot of wastage from unnecessary extra accounts. The government has taken steps to address this. All inactive superannuation accounts with balances below $6,000 will be transferred to the ATO to protect members from account consolidation. The ATO will now proactively find any lost super and have it forwarded to a member’s current active account. This should reduce the number of accounts by several million. It will also send about $6 billion of superannuation to the active accounts of 3 million members. This will impact on some industry funds with large numbers of young members. They and their administrators will have to reset fee levels. It will also reduce total industry group insurance premiums which will no longer be deducted from these accounts. Super Fees There are nearly 10 million accounts with balances under $6,000. In future, there will be a cap of 3% on combined administration and investment fees for these accounts. This will mean lower fees for new accounts until the balances build up. It will no longer be possible to charge an exit fee when rolling over superannuation from one fund to another. This would have saved an estimated $37 million a year in 2015-16 but the actual figure will be higher given the larger volume of account consolidation.
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The ban on exit fees may be a significant impost for some life companies which hold legacy products with high termination charges. This could be a catalyst for converting many of these products to contemporary ones and to terminate the redundant administration systems. Life Insurance A major change is the removal of default group insurance for several groups from July 2019: •
All members under age 25
•
Inactive accounts, defined as those which have not received a premium in the last 13 months
•
Accounts holding less than $6,000
Members in all these categories can opt-in but experience suggests that most will not. This could reduce overall group premiums by $3 billion a year (about 25% of all premiums). Existing members in these groups can opt-out at any time in the next 14 months. In addition to this change, the government intends to consult further on improving policy settings to better balance the priorities of retirement savings and life-risk insurance cover within super. Pensioners Recent retirees with total superannuation of less than $300,000 at retirement can now make voluntary superannuation contributions for a year after they cease work. From July 2019, the government will expand the Pension Loans Scheme to all older Australians including self-funded retirees. This facilitates the release of equity from homes by a government reverse mortgage at an interest rate of 5.25% (which has been unchanged for 20 years). Effectively, retirees who own a home can nominate the additional annual pension income they want (up to a maximum of 150% of the full Age Pension) and it will be paid as an addition to their Age Pension. The annual payments accrue with interest and the loan is repaid when the house is sold. The loan payments are exempt from the means-test provided the additional income is consumed – if it is saved, it will be counted as an asset! There is an expanded Pension Work Bonus allowing Age Pensioners to earn $300 a fortnight without reducing their pension payments (including the self-employed for the first time). Retirement Incomes Superannuation trustees will need to formulate a strategy to provide members with a path to achieve their retirement income objectives. Trustees will be required to offer Comprehensive Page 4 of 6
Income Products for Retirement (CIPRs) that provide individuals income for life, no matter how long they live. A position paper will be released shortly but it does mean that, for the first time, all trustees will need to consider matters such as longevity in their offer to retiring members. However, the CIPR need not be the fund’s default retirement product. Enhanced disclosure will be required to assist members to make decisions between different retirement products. This will increase the demand for financial advice. The Age Pension treatment of innovative income stream products will be clarified after several years of consultation. From July 2019, the means test will change to assess 60% of all pooled lifetime income products as income and 60% of the purchase price as assets until age 84 (or a minimum of five years), then 30% for the rest of life. Franked Dividends The government has confirmed that it will continue the practice of refunding tax where an individual (or super fund) is entitled to a rebate due to imputation credits on dividends exceeding their tax liability. This is a deliberate differentiation from Labor which proposes to abolish refunds. Labor claims a tax saving of $55 billion over 10 years but this is disputed by the superannuation industry, particularly as the measure can be avoided by changing type of fund or asset allocation.
Other matters of interest to actuaries Aged Care A new package, More Choices for a Longer Life, includes an additional 14,000 high-level home care packages to allow Australians to stay in their homes longer if they so desire. This will take pressure off the growing need to find enough aged care facilities for older Australians. Financial System Not surprisingly after the findings of the Royal Commission into Misconduct at Banks and Financial Institutions, the major bank levy introduced last year will continue. The Australian Financial Complaints Authority will commence on 1 November 2018 and the Banking Executive Accountability Regime commences on 1 July 2018. Investment The Government is providing significant new infrastructure, as part of a 10-year $75 billion infrastructure plan. New announcements scattered around the country include: ► Tullamarine Airport Rail Page 5 of 6
► Western Sydney Airport ► Brisbane Metro ► Perth Metronet ► Gold Coast M1 upgrade ► Coffs Harbour bypass Health Funding for Medicare and the PBS (from last year’s Budget) have been guaranteed in legislation. The government is fully funding the NDIS with $43 billion over the next three years (in a total budget of $83 billion for that period). Mental Health The Government is providing $33.8 million to Lifeline Australia to enhance its telephone crisis services and funding for beyondblue and the Way Back Support Service. Genomics There is a 10 year $500 million commitment to the Genomics Health Futures Mission and a further $707 million in funding from the Medical Research Future Fund will be provided to support the Frontier and Medical Research Program, expanded clinical trials, Biomedtech programs and Industry Researcher Collaborations. Consumer Data Right The government has an initiative to enable Consumers to take control of their personal data and share it safely with trusted and accredited service providers. Small and Medium Business The Government has extended the $20,000 instant asset write-off for a further 12 months to 30 June 2019. This general summary has been prepared for information only. Please refer to the Budget Papers for details in relation to specific issues.
Institute of Actuaries of Australia ABN 69 000 423 656 Level 2, 50 Carrington Street, Sydney NSW 2000, Australia t +61 (0) 2 9239 6100 f +61 (0) 2 9239 6170
[email protected] | www.actuaries.asn.au
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