Budget 2016: Doubts over safety of retirement super nest eggs

Labor has accused Scott Morrison of ‘lying’ about his tax increase on super after he rejected retrospective changes.

There are concerns over superannuation changes regarding retirees’ nest eggs.

Labor has accused Scott Morrison of “lying” about his tax increase on superannuation after the Treasurer insisted yesterday that he was not making retrospective changes to retirement nest eggs.

In an unlikely alliance with Labor, the conservative Institute of Public Affairs also branded one of the changes retrospective ­because it would impose a new tax on people already in retirement after building up their savings under the current rules.

The government is headed for months of consultation and potential division within its own ranks if it wins the election and proceeds with complex legislation to deliver the $2.9 billion in revenue it wants from the super package.

Mr Morrison told Melbourne radio 3AW in February that “of course” he guaranteed there would be no retrospectivity in the super changes, and he told Sydney’s 2GB last November that people would face “nothing that punishes or penalises them retrospectively” in super.

The budget changes hit the ­Coalition’s electoral base by planning a $1.6 million “transfer balance cap” that imposes a 15 per cent earnings tax on sums above that amount that are put into the retirement phase when a worker retires. Another change will apply a $500,000 lifetime cap on contributions that workers can make from their after-tax income, measuring the amount from July 2007.

The Treasurer said yesterday that he had not made any retrospective change.

“The simple thing is I have not changed the tax treatment of ­retirement accounts,” he said of the $1.6m cap.

“Those retirement accounts in the retirement phase remain tax-free. We are not taxing the earnings out of the retirement phase accounts, full stop.

“What we’ve done is we’ve set a limit on what can go in those ­retirement accounts. That’s a different position and that’s why I’m very comfortable with it.”

But IPA policy director Simon Breheny said the apparent intention to apply the $1.6m cap to funds already in the retirement phase meant the policy was retrospective.

Industry groups such as the ­Financial Services Council and the Self-Managed Super Fund Association also have concerns.

Mr Morrison has attacked Labor for proposing an earnings tax of 15 per cent on large super funds with earnings of more than $75,000, but his new approach ­appears to share some similarities with the Labor policy.

A typical fund return of 5 per cent a year would produce earnings of $75,000 if a fund balance is about $1.5m, close to the benchmark in the new government ­policy.

The Treasurer’s policy would also apply a 15 per cent earnings tax but his plan uses the fund balance rather than the earnings as the key benchmark.

“The Treasurer is lying on retrospectivity,” said Labor Treasury spokesman Chris Bowen. “The Treasurer needs to be honest and upfront with Australians on what you’re doing is the better way.

“Those with super balances in retirement phase of over $1.6m will need to reduce their balance by 1 July 2017. That is clearly changing the rules on those with higher balances.”