Reforms will lead to flood into funds

Actuaries are expecting wealthy savers to take advantage of newly found clarity surrounding super contribution rules.

The wealth management industry will be quietly salivating over the incoming flood of funds.

Australia’s wealth management industry is bracing for a flood of personal contributions into superannuation funds after the federal government’s super reforms were finally passed through parliament.

Actuaries are expecting wealthy savers to take advantage of newly found clarity surrounding super contribution rules and pile in funds that had been deferred because of the uncertainty of the legislation that was announced by Scott Morrison on budget night in May, just before the July election.

Although the new annual $100,000 cap on after-tax contributions is a lower limit than the previous generous allowance, savers have until July 1 next year to take advantage of laws allowing people to “bring-forward” three-years’ worth of annual contributions up to $180,000 — meaning wealthy Australians can squirrel away a total of $540,000 in non-concessional contributions into super before the new rules take force.

“There’ll probably be quite a few people who will do that,” said Rice Warner head superannuation consultant Nathan Bonarius. He said the scrapping of previously proposed $500,000 lifetime cap on non-concessional contributions, which was supposed to be effective from budget night, allowed people the chance to ply extra funds into the low-tax environment.

“The lifetime cap was announced on budget night effective immediately. They wanted to ensure people didn’t rush out and put in money before the end of the year.

“Now that’s changed into an annual cap and it’s not ­effective until July 1, 2017, so ­people now have that opportunity.”

The wealth management industry will be quietly salivating over the incoming flood of funds. Uncertainty surrounding the reforms had dissuaded many savers from contributing since budget night. Personal contributions fell nearly 30 per cent over the September quarter compared with last year, and official figures this week showed total contributions into the super system dropped 1.5 per cent over the year, equal to a $1.5 billion fall over the period.

Cash flows at AMP, the country’s largest wealth manager, dropped 50 per cent in the first half of the year. “Flows were recovering quite nicely until the week of the budget and then they flatlined,” chief executive Craig Meller said at the time.

According to IOOF chief executive Chris Kelaher, “We will see another flourishing (of contributions) coming though” now the reforms were passed.

But things were not all rosy for the super industry. Mercer actuary David Knox said the reforms were a fairer and more equitable package but the decision to impose a 15 per cent tax on earnings in transition-to-­retirement funds was an administrative nightmare and would prove costly. “This will make the TTRs much less attractive and we can see that type of product becoming much less popular in the years ahead,” Mr Knox said.