Transition To Retirement Tax Changes: Super Funds Pressed For Time

ASFA asked Treasury to delay the tax changes to Transition to Retirement Income Streams (TRIS).

In the week before the super tax reforms were passed by Parliament, the Association of Super Funds of Australia (ASFA) asked for a 12-month extension to the introduction of tax on transition to retirement income streams (TRIS), asking for it to be pushed back to 1 July 2018.

The tax changes to TRIS were part of this superannuation reform package.

ASFA made the request in a submission to Treasury, reporting that funds won’t be able to meet the scheduled 1 July 2017 implementation date.

In their submission, ASFA said that super funds currently have limited capacity to implement the TRIS changes, with changes to SuperStream and fee/cost disclosure already scheduled for commencement.

“A number of funds have indicated to us that they believe it will take them between 18 and 24 months to make the necessary system and process changes to be able to administer this change,” the report said.

“The alternative – to close their existing products – would take at least nine months to complete.”

Implementation challenges

According to ASFA, some of the system changes super funds would need to undertake in order to implement the TRIS changes include:

  • Settling the administrative design
  • Determining the information technology specification
  • Building and coding system changes
  • Testing changes thoroughly in a test environment
  • Releasing changes to the production environment
  • Allowing sufficient time to rectify any unintended consequences

In addition to these considerable system changes, ASFA said implementation work would also include:

  • The design and implementation of appropriate processes to manage the operational risks created by the new categorisation of products and members
  • The determination and retention of the market values of affected assets to implement the CGT cost base relief
  • Changes to ATO reporting – currently TRIS member are reported as pension members but, as their account balance will not count towards the transfer balance cap, this will need to be changed in future reporting

“Some funds will be required to build systems to track earnings in the fund against each member, aggregate them, and tax them at 15% which, given the number of investment options, will prove to be a complex and time-consuming operational build,” the ASFA submission reported.

“For many funds, tax is attributed into the unit price and there is segregation of accumulation and pension members and in order to apply the earnings tax to TRIS members, funds will be required to create a new subset of TRIS members and new, standalone, TRIS investment options.

“This will also lead to increased custodial costs with respect to the new suite of investment options which will need to be created.”

The cost of making the changes

With regards to how costly the measure will be, ASFA reports that:

  • One large fund has estimated that this measure alone will account for approximately two thirds of their total compliance costs for the entire package.
  • Another large fund has indicated that its high level costing are that this measure, as currently drafted, will cost between $3 million and $5 million to implement.
  • Another large fund has indicated that a conservative estimate of their implementation costs is a minimum of two million dollars.

Alternative measures

ASFA also suggested Treasury consider some alternative approaches to the TRIS changes, to make it easier for super funds to implement:

  • Reduce tax offset for only those under 60: “The 15% tax offset for income paid to the member from a TRIS could be reduced for those members under 60. This change is significantly simpler for funds and would dramatically decrease implementation costs.”
  • Apply measure prospectively: “This would enable funds to close their existing TRIS product to new members and either to:
    • Not offer a new TRIS to members after 1 July 2017, or
    • Offer a new TRIS from a later date, once the system has been developed.”

 

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