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Minister Jane Hume on SMSFs and superannuation reform

Senator the Hon Jane Hume

Minister for Superannuation, Financial Services and the Digital Economy

Address to the Self-Managed Super Fund Association Annual Conference

Tuesday, 16 February 2020


Thank you, it’s terrific to be joining you again. This conference is always a great way to start the year and a welcome opportunity to outline the Government’s plans for the self-managed super sector.

But first I want to recognise and acknowledge the Self-Managed Super Fund Association’s work — particularly during the COVID-19 pandemic — in representing an integral part of the superannuation ecosystem.

As at September last year, there are more than 591,000 self-managed super funds accounting for $728 billion or around a quarter of funds under management.

As your research shows, the driving force behind these numbers is Australians’ desire to be ‘masters of their own destiny’ to control their own personal retirement incomes. That’s something we as a Government wholeheartedly endorse. We want more people to take an active interest in their personal finances and retirement savings.

Establishing and running a Self-Managed Super Fund is a significant undertaking. It is also rewarding and provides trustees with greater flexibility and control over their savings.

Self-Managed Super Fund trustees take personal responsibility and maximise their choices to achieve comfortable living standards after life-long efforts and hard work.

I am encouraged to see ASIC’s new estimates of the cost for the average user have been refined and are more in line with people’s expectations. We also now know that costs of running a Self-Managed Super Fund have decreased since 2013. Rice Warner’s report found Self-Managed Super Funds with balances as low as $200,000 are now able to be cost competitive with APRA-regulated funds.

I’m pleased to say that developments in technology and the fintech sector have been driving many of these costs down. And they will continue to do so. Fintech solutions lower administration and costs - and in turn - the lower the costs of running a Self-Managed Super Fund becomes, the more people are attracted to the sector and the bigger and more vibrant the sector becomes.

Taking factors such as flexibility and costs into account, all people should have the ability to make choices about what suits them — and our compulsory super system should allow them to be as engaged as they wish.

The Government’s role in this is to get the policy settings right. So today I will discuss some recent developments and what’s coming up for the Self-Managed Super Fund sector.

Recent reports

The Retirement Income Review, which was released in November, confirmed the importance of superannuation to our retirement system.

It found that the system – based on the three pillars of the Age Pension, compulsory superannuation and voluntary savings (including home ownership) – is delivering adequate retirement incomes for the majority of Australians, and will be viable for generations to come.

The Review found that the current system is effective, sound and broadly sustainable. But it also confirmed there is room for improvement.

One of the key Government policies the Review highlighted was the Retirement Income Covenant.

Having postponed the introduction of the Covenant during the COVID-19 response last year and to allow time for further consultation, the Government is continuing to progress this important reform, and we look forward to working with the Self-Managed Super Fund Association on the Covenant in the near future.

It’s imperative that trustees of all funds support their beneficiaries by developing strategies that carefully consider the retirement income needs and preferences of different cohorts of their members.

That is what the Covenant is about. Having a strategy for retirement is as applicable to Self-Managed Super Fund members as it is to members of large funds. Indeed many Australians choose to set up a Self-Managed Super Fund precisely at the point of entering retirement when they have more time to manage their savings.

Of course, trustees don’t need to wait for the Covenant to be legislated to take action. There’s nothing stopping trustees from developing strategies that meet their members’ retirement needs now, and I’d encourage them to do so.

The Covenant is just one of many measures this Government has delivered to directly assist Australians to engage with their super outcomes, maximise their savings, and secure their standards of living into the future.

The Government has legislated to eliminate exit fees and protect superannuation savings from excess charges and costs: such as by making insurance an opt-in for accounts with balances less than $6,000 and for individuals under 25. And, providing choice of fund to all Australian workers - including the right to direct contributions to a Self-Managed Super Fund - via the ‘Your Super Your Choice’ legislation passed last year.

One announcement you may have missed which is pertinent to many, in December 2020, the Government stated it would be amending the law to ensure retirees who have commuted and restarted certain market-linked pensions, life expectancy pensions and similar products are treated appropriately under the transfer balance cap.

As you may recall, the changes the Government made in 2016 resulted in an unintended outcome that meant individuals who commuted and restarted one of these products may have been inadvertently caught in a perpetual excess transfer balance cap position which could not be resolved.

This measure will enable retirees with these products to make the necessary partial commutation to remove the excess. The Government will also ensure that excess transfer balance tax for retirees in this situation will not apply until after the amending legislation has received Royal Assent.

Your Future, Your Super

Of course the big ticket reforms that will be the feature of the early part of the parliamentary year will be the “Your Future Your Super” changes.

It’s estimated these important reforms contained in the Your Future, Your Super package will benefit members by around $17.9 billion over the next 10 years.

From 1 July this year:

– Accounts will follow employees as they change jobs, thus minimising the creation of those unintended multiple accounts.

– It will be easier for account holders to choose better funds with a new interactive online YourSuper comparison tool that will encourage funds to compete harder for members’ savings.

– Funds will be accountable for persistent underperformance by requiring MySuper to meet an annual objective performance test. Those that fail will be required to inform members and persistently underperforming products will be prevented from taking on new members. This measure will be extended beyond MySuper products to Trustee Directed Products in 2022.

– And for those of us gathered today, the element of the Your Future, Your Super package that is particularly relevant to Self-Managed Super Funds is the best financial interests duty.

Best financial interests duty

Superannuation funds should be held to the highest standards of accountability and transparency and Self-Managed Super Fund trustees are no exception.

To that end, the best interests duty will be amended to the best financial interests’ duty, to remove any doubt about how super fund trustees should use members’ money.

This change will ensure super funds are more accountable for their decisions and prioritise members’ financial outcomes.

SMSFs size

You may also recall that last September, the Government re-introduced a Bill to Parliament to increase the maximum number of members in Self-Managed Super Funds and small APRA funds from 4 to 6.

This measure is about increasing choice and flexibility, particularly for larger families who don’t currently have the option of including all members of their family in their Self-Managed Super Fund.

As you will all be aware, families with more than 4 members must either create 2 self-managed super funds — incurring extra costs — or place their superannuation savings in an APRA regulated fund.

The Government understands that this is a barrier and is committed to seeing passage through the senate this year. This measure will support families of all sizes using Self-Managed Super Funds as a vehicle for controlling their own superannuation savings and investment strategies.

Closing remarks

As the Retirement Income Review pointed out, it’s quite remarkable that a country the size of Australia – the world’s 13th biggest economy and only number 52 by population - has the fourth largest stock of superannuation assets in the world.

Those Australian savers– including Self-Managed Super Fund members –collectively own close to $3 trillion in assets.

That’s larger than the market capitalisation of the Australian Securities Exchange and larger than Australia’s GDP.

Our retirement income system is well placed to deal with economic shocks – as we saw when the COVID-19 economic crisis hit.

For me the early access to super scheme rolled out during Covid-19 also demonstrated a strong and welcome indication that Australians are becoming more engaged with their superannuation and retirement planning.

We have a system we can be proud of but it’s not perfect.

In the year ahead, the Government will continue to take a practical, common sense approach to policy with the best outcomes for super fund members front of mind at all times.

I’m honoured the Prime Minister has appointed me as Minister with responsibility for superannuation, financial services, and the digital economy. Each of these areas is critical to the future of our economy, especially as we continue to manage the COVID-19 pandemic. Our work continues, as does yours.

And I look forward to working with the Self-Managed Super Fund Association.


Transcript provided by the SMSF Association.


March 10, 2021

The Government which states categorically that it will LEAVE Superannuation alone and not make any further changes
to SUPERANNUATION will get my vote !
The whole issue is so fluid and so constantly "under review" and uncertain that it makes running a SMSF a constant worry !
The "infringement penalties" are real though.
The rest seems to be "smoke and mirrors" and a real disincentive , especially if "one" wants to relax and enjoy their retirement.
Alternatively , SCRAP COMPULSORY SUPERANNUATION COMPLETELY , give everyone a "Universal Pension"
[ with no means testing ] and DISTRIBUTE the alleged or "so called" taxation generosity of $43 Billion to EVERYONE OF PENSIONABLE AGE and simplify the "industry" by cutting out all the "administrative people" who would no longer be needed to administer the various "means tests" [ that would certainly provide extra funds to distribute ! ] OR just leave it alone !
Is that REALLY too much to ask ?

March 04, 2021

The government acted swiftly during Covid and put in policies that helped Australians survive in a much better way than others.
Their decision to allow SMSF retirees and others withdrawing pensions from their funds to half their required amount according to their age has helped a lot by preserving their capital when the markets were falling.
We urge the Government to extend this policy for at least another 2 years so that we can by then come to a strong footing.
Another way Government can make a real difference to self-funded retirees is to issue them CSHC permanently irrespective of their incomes which have dropped significantly in the low-interest environment.

Ray F
February 21, 2021

I feel an important issue for many SMSF retirees is the minimum drawdown rate in pension mode.
The pension draw down rates were set in another era where bank deposit rates, rental yields, bond rates and dividends where all much higher than today. By my calculations, a Superfund trustee invested equally in the above four asset classes would return under 2% per annum today compared with over 5% pa around 10 years ago.
So why set the minimum drawdown rate at 4% (for 60 year olds)? A trustee who carefully planned their asset allocation to return 4% pa to fund their retirement is now finding their return is more in the realm of 2-3%, so why not set that as the minimum drawdown rate?
The problem is that capital appreciation in asset prices, especially over the past year, has inflated balances and made it hard for trustees to reach the minimum drawdown rates.
For an investment allocation not reaching a 4% return, trustees must sell some of the capital to make up the difference.
This ‘decumulation’ concept may sound good in theory if you have an industry fund, but for SMSF retirees who may own property as part of their asset allocation, it could prove quite difficult as you can’t sell the laundry to find that extra cash.
This situation could force retirees to sell down assets prematurely to get cash.
Whilst it may sound good for a couple to have say $2m in super, that may well be made up of assets such as property which only return relatively low net rental yields of 2% or less after expenses.
A couple such as this could probably live comfortably on a 3% return of $60k per year, rather than stressing to find that extra $20k to reach $80k that meets the 4% minimum.
To its credit the Aust Govt realised this issue during Covid and halved the minimum drawdown rates for these past two financial years. These ‘half rates’ however should continue until such time as asset returns begin to increase sometime in the future.

Jon Kalkman
February 21, 2021

Ray raises an important point. The mandatory pension cash drawdown from a super pension bears no relationship to the income the fund actually earns. In fact, the mandatory percentage increases with age. At age 60 it is 4%, at age 80 it is 7%, at age 90 it is 11%, and at age 95 it is 14%. This requirement is the quid pro quo for the pension fund benefiting from zero tax on its income. Therefore, it is only a matter of time before assets need to be liquidated to meet this annual mandatory withdrawal in cash. A super pension fund has been designed to progressively remove assets from this tax haven.

Note that while this money needs to be removed from the pension fund, there is no requirement to spend it. Managing these progressive cash withdrawals highlights the difficulty of holding lumpy assets such as residential property in a pension fund.

Failure to meet this mandatory requirement will result in the pension fund losing its tax-free status and consequently will be taxed as an accumulation fund where the income is taxed at 15%. On the other side of the coin, an accumulation fund has no obligation to withdraw cash and can be left to grow indefinitely.

February 24, 2021

I don't think drawdown rates were ever intended to be aligned to returns. Instead it is to ensure assets are removed from the concessionally taxed environment. As the Government keeps reiterating the scheme is not their to accumulate assets to transfer to the next generation given the tax concessions granted. If a large percentage of a SMSF assets are tied up in property this probably indicates an asset allocation issue and not just for liquidity reasons but also diversification. Short term changes in the market shouldn't force assets to be sold down to meet pension payments. E.g. approx. 2 years of pension payments in appropriately liquid assets.

Eleanor Martin
March 09, 2021

Ray, I could not agree more. The governments do not want money passed on to the next generation. Yet the young generation think the baby boomers are greedy as it was so easy to accumulate money, receive inherited money and those boomers are living longer to their disgust and spending it!!! Shock horror. They believe they should mind grandchildren while they work. For some reason if you were frugal and worked hard, you get punished for it. There is an ill feeling towards retirees by the younger generations. Governments see the accumulated monies by retirees and want it. Hence dividends are up for grabs. Take away dividends and try running your smsf on 1% interest and 2% bonds - really, plus demanding you take out more than you wish to, to be frugal, is not allowed. As it is the cap placed on retirees also unfair if you are at the bottom of the pile. Married couples get to hold $1.5m each and pay no tax but if you become a widow, you pay tax on the other half. Honestly when I think I have paid high taxes (yes you younger lot thinking it is easy - plus higher interest on homes) I get no medical card as they changed the rules nor do I get the government handouts of money that goes to most retirees., when they feel like being generous. Tax and take from the workers but give more to the lazy dole bludgers without rules!! ie forever.
Yes, Ray, a least let us keep reduced draw downs when times re interest are being held down!!!! reducing our income and endangering our portfolios by having to resort to higher risk assets to try and survive. Honestly what happened to a fair go and support for the Australians who worked hard and saved and paid high taxes.

March 09, 2021

"try running your smsf on 1% interest and 2% bonds":

Start retirement with adequate capital, withdrawing equivalent of, but not eligible for, Age Pension from 67 to 95 :
= PV((1+2%)/(1+1%)-1, (95-67), 40000, 876500, 0)
= -$1,639,169.52 (-=invested into fund)

"demanding you take out more than you wish to, to be frugal, is not allowed":

Neither spending withdrawals nor dying with no capital is compulsory.

"Married couples get to hold $1.5m each and pay no tax but if you become a widow, you pay tax on the other half.":

Withdraw other half and stuff it into home.

"a least let us keep reduced draw downs when times re interest are being held down":

Seems reasonable.

"reducing our income and endangering our portfolios by having to resort to higher risk assets to try and survive":

The cost of living for a home owning couple is ~$20,000 per year. Much less than $37,000+ Age Pension. 'The problem' is the cost of entertainment.

February 18, 2021

SFRs are in the unfortunate situation of needing about $2 million in capital to generate similar income to those receiving the full centrelink aged pension rate !! This is where a universal pension would beneficial as done in many other countries. Plus much less cost to govt to administer.

February 18, 2021

So scrap superannuation. Make it voluntary, without the tax breaks thereby saving the Govt $43B per yr in foregone tax and increase the Aged, disability pensions (in fact they could double simply by using that $43B) The high income earners will always take care of their future. That way with less in their coffers and not having a guaranteed captive contributor the super funds would have to look after the members they have. Members will just keep coming year after year in the present system whether they want to or not. I found some industry fund people the most arrogant people I have dealt with. The money in ur fund account is not yrs particularly if you don't have dependents. I'll add that I got a $51,753 tax bill on the half of my son's Super and DB that the Trustee gave us, his parents, and the girl who received the other half was tax free. We paid for his funeral, bought his burial plot, headstone, paid all his outstanding bills. She paid nothing. No reason was given and 18 months later still no reply. Under section 10.1 of the SIS Act a beneficiary has to be given a reason and also under 25D of the Acts Interpretation Act 1901. I have been to ASIC (very nice and helpful), APRA (also nice and helpful) and AFCA (twice) nice but useless body in my case. So I think u are better to control ur own money and u can give it to whoever u want. Remember insurance outside super there is no tax to pay. Even retail funds pay to the nomination and if no nomination, pay to the Will. No interference. 

February 18, 2021

(Identity withheld and personal details removed) "Your Super, Your Future"?? I have a better one "It's Australian, It's Super and It's Yours - Until You Die". My deceased son's superannuation and Death Benefit was given by his super fund to a girl he knew for less than 2 yrs. No marriage, no engagement, no registered relationship, no children biological or step, no shared mortgage, no shared bank accounts, no shared bills, not on his medicare or tax, and he had his parents as his beneficiaries of his Will and his non binding nomination on his fund. Don't anyone tell me he should have had a binding nomination and show yr ignorance of this system but that is also what the Trustee stated in a letter to me. The Trustee also stated he couldn't take the Will into consideration because it had been made 3 yrs before knowing this girl. Superannuation is the biggest rort, and Jane Hume as Finc Services Minister, is not telling the public this. Superannuation should be made voluntary, cut the tax rorts and increase the Aged Pension. Trustees should not have control of "your" money. It is only since Liberals allowed access to super that it has even been considered "your" money. I was told "it is held in trust" therefore not covered by your Will and the Trustee will decide. 

Marty McSly
February 18, 2021

That's why my wife and I have binding nominations.

February 19, 2021

Marty McSly. If yr beneficiaries are non dependent and you have a binding nomination then that binding nomination becomes invalid. My industry fund states on its website that for a binding nomination to be valid it must be current (i.e hasn't lapsed) and the beneficiaries must be dependent. (with a list of who you can leave yr super to: a spouse incl same sex or defacto, a child of any age incl ex nuptual, adopted, an interdependent or financial dependent. If ur beneficiaries are other than these yr binding nomination is invalid and the Trustee will decide. FYI a person without dependents needs to have a Will and nominate LPR as the beneficiary and mention in the Will who the super and DB is to go to. The downside to this is that a 18, 20 or even 25 y.o. will prob not have Will partic if he has no assets outside Super. Be advised also that if the nominated beneficiary is not dependent the Insurance companies don't have to pay the insurance even tho the deceased member has been paying it for yrs. All of this I have learnt since my son died and his Super was given away by a fund trustee. This situation is intolerable. To force Aus workers to put their money into a scheme with these conditions and yet no-one in the Super Industry or any MP is criminal. You might understand now why I call it a rort! You should be ok tho seeing ur circumstances

February 19, 2021

You are giving the impression that all that is needed is a binding nomination. Firstlinks has published two of my blogs on the downsides to compulsory super which might rattle the herd. You might also look to the future in case you re-partner or have a child who has lived independently and then dies from an unknown genetic condition and you find siblings have the same condition and will need lifelong support as my other son and grandson are needing. It is this everyone needs to guard against. Unless you have a crystal ball. Good luck, i hope ur life runs smoothly.

February 18, 2021

591,000 self-managed super funds accounting for $728 billion - or $1.2m average balance - this is a bit misleading.

If we assume that 20% of members hold 80% of assets in those fund, this would mean that
the bottom 473,000 of people, the mums and dads and smallest business owners hold 145 billion - or $300,000 average balance.

February 18, 2021

I don't believe political parties of all persuasions understand the impact of low interest rates on self funded retirees. I have two family members in their mid seventies who are very conservative in their investment portfolios, mainly fixed interest and bonds with minimal shares. As interest rates have fallen so has their income. With the help of their financial advisor they have upsized their homes through significant extensions, increasing value, and in the process now qualify for the age pension, receiving a steady income and all other benefits eligibility provides. The increase in capital value of their homes maintains their capacity to fund moving to age care in the future if required, while providing increased stability in income. This outcome, while appropriate for them, increases the impost on government and taxpayers.

February 18, 2021

Spending excess capital on a home renovation to qualify for the Aged Pension is a long term play, as the money spent on the reno will usually remain an assessible asset for 5 years. That's a long time to wait for the first pension cheque.

February 19, 2021

Why is it an assessable asset? I would have thought it was your residence an exempt asset paul

February 18, 2021

what is the status of the "bring forward" legislation that was held up by Covid? Is this likley to be grandfathered considering the delay in enacting this legislation?

February 18, 2021

Exactly. Minister Hunt did not address this burning issue. I received a letter from her office dated 7/7/2020, stating that the Government remains committed to passing the enabling legislation in it current form, with effect from 1/7/20. Her reply did not explain why passage is stalled, given it is a simple bipartisan change. Covid's impact on Senate sittings, presumably. Her letter stated that should the legislation fail to pass this FY, contributions reliant on the change could be withdrawn without incurring excess contributions tax, although tax would be payable on any related earnings, at personal marginal tax rates.

Vincent Lo Blanco
February 18, 2021

"For me the early access to super scheme rolled out during Covid-19 also demonstrated a strong and welcome indication that Australians are becoming more engaged with their superannuation and retirement planning." Brilliant! They became more engaged because we enticed them to opt out. Some might consider that "ending an engagement."

Michael O'Rourke
February 17, 2021

It would have been interesting to understand from the Minister if the deeming rate and minimum pension pension payable will be subject to further review noting interest rates etc will be kept artificially low by the Reserve Bank until 2024.

February 18, 2021

Michael, I agree about the deeming rate, getting deeming rate to reflect what is happening to interest rates could help buffer retirees and reduce the need for riskier investments

February 21, 2021

But not for self-funded retirees!


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