Minister for financial services and superannuation Bill Shorten and deputy prime minister Wayne Swan jointly fronted media to outline the government's plans for superannuation policy, ending speculation that was reaching fever pitch intensity amid fervent lobbying from throughout the industry.
The changes will raise concessional contributions caps and cap the tax exemption for earnings on superannuation assets supporting income streams at $100,000, with a concessional tax rate of 15 per cent applying thereafter. Excess contributions tax arrangements will also be streamlined.
They will also extend the normal deeming rules to superannuation account-based income streams, extend concessional tax treatment to deferred lifetime annuities, and further reform the arrangements for lost superannuation.
The government estimated the reforms would save around $900 million over the forward estimates period.
The changes would "improve the fairness, sustainability and efficiency of the superannuation system," according to the government.
The government said the $100,000 income cap for super tax exemption would provide a more targeted approach and make the system fairer and more sustainable. "An individual with $100,000 of tax-exempt earnings typically receives more government assistance than someone on the maximum rate of the single age pension," the government stated.
Treasury estimated around 16,000 individuals would be affected by the measure in 2014/2015, contributing to a saving of around $350 million over the forward estimates period.
The changes would apply to members of defined benefit funds, including politicians, by calculating the notional earnings each year, adding $6 million in savings according to estimates.
However, FSC chief executive John Brogden was concerned the measure would be overly complicated to implement.
"We have some concerns with regards to the complexity of the policy they've announced with respect to individuals who receive more than $100,000 in pension flows out of their super," he said.
He said the policy was a complete surprise to the industry and was implemented without consultation. He said it was critical for government to consult with the industry and added the FSC would like to see the details.
Concessional caps will be raised in an indexed fashion, with those aged 60 and over to benefit from the $35,000 cap from 1 July this year, for those aged 50 and over from 1 July 2014 with the $35,000 cap expected to apply generally from 2018. The caps will no longer be limited to balances below $500,000.
Excess contributions tax (ECT) arrangements will become "fairer and give individuals greater choice", allowing all individuals to withdraw excess concessional contributions made from 1 July 2013 from their fund.
Excess concessional contributions will be taxed at an individual's marginal tax rate, plus an interest charge to recognise that the tax on excess contributions is collected later than normal income tax.
Under changes to arrangements for lost superannuation, the threshold below which inactive accounts, and accounts of uncontactable members, are required to be transferred to the ATO, will be raised to $2,500 from 31 December 2015, and to $3,000 from 31 December 2016.
Mr Brogden said the proposals broadly reflect a number of proposals the FSC has put to the government in recent years, including increasing the contributions cap.
"All in all we're pleased the government finally broke their silence on this and didn't wait until the budget and addressed what has become fever pitch speculation," he said.
However there are questions over how much of the legislation can be passed before the September election. "I think there's only five weeks left - that's 15 sitting days. There's not a lot of room between now and parliament rising for the election," Mr Brogden said.
"The Treasurer has indicated they will be taking these policies to the election . we would obviously like to see as much of this policy legislated or at least put out in draft form before parliament rises."
The proposals received a mixed response from the industry more broadly.
The Association of Superannuation Funds of Australia (ASFA) welcomed the announcement, with chief executive Pauline Vamos saying it would help "stop the panic" in the community.
"We have been calling on the government to put a stop to the hysteria and consider policies which take a long-term approach to the future sustainability of Australia's superannuation system," she said.
The Financial Planning Association (FPA) also welcomed the announcement: "Whilst we do not support increases in superannuation taxes we understand the changes are needed to obtain sustainability and certainty for the retirement system," said FPA chief executive Mark Rantall.
In particular, the FPA welcomed the amendments to the excess contributions tax system and the increase in the concessional contributions cap.
The Australian Institute of Superannuation Trustees (AIST) chief executive Tom Garcia said he was pleased the latest round of changes did not involve fundamental changes to the structure of the super system.
"The changes do bring about a small level of greater equity for the members of funds, but more needs to be done for the lower paid, women and ordinary Australians," he said.
He welcomed the improvements in higher concessional caps and less punitive excess contributions tax, but said the AIST would continue to advocate for reinstating the $50,000 cap.
The Association of Financial Advisers (AFA) described the proposals as "mixed", saying they would help maintain consumer confidence but may result in increased complexity.
"We are very pleased that industry lobbying for an increase in concessional contributions caps has paid off," said AFA chief executive Brad Fox.
However, he remained concerned that any increase in tax and any further complexity would result in Australians losing faith in super and looking for alternate savings vehicles.
The Institute of Public Accountants (IPA) described the proposals as a "mixed bag of outcomes".
IPA chief executive Andrew Conway said there was still a need for higher contributions caps but welcomed the ECT changes.
"Whilst these reforms may serve to help simmer down the anxiety, real reform that actually serves to encourage long-term savings rather than reduce the funds is what is required to give all working Australians certainty and confidence," Mr Conway said.
Annuities specialist and wealth manager Challenger welcomed "proper longevity insurance" in the form of deferred lifetime annuities.
"We welcome the levelling of the taxation playing field in this regard because proper longevity insurance removes the major 'silent risk' of retirement - running out of money in later years and being forced to survive on just the age pension," said Challenger chief executive Brian Benari.
Deloitte welcomed the changes but also expressed concern over a potential increase in complexity.
"We don't have enough detail as to how this new [higher contribution tax for those earning over $300,000 per year] will be collected and I am concerned this will add considerable administration and reporting expenses to all superannuation funds," said Russell Mason, national superannuation leader at Deloitte.
"These costs will be borne by all members, not just those with high balances," he said.
"If the super tax system is to be reformed, it needs to be done in a simplified manner that is easily understood by fund members and is easily administered."
The Industry Super Network said the changes had the "potential" to provide certainty and are a "step in the right direction and deserve serious debate based on their merits, not partisan politics".
"Taken as a whole, the measures should achieve a more equitable and sustainable superannuation system, though we would urge the government to publish updated estimates on the quantum and distribution of concessions both before and after these changes over the long term," the ISN stated.
