Coronavirus (COVID-19) updates from the Australian Government

Updating the Model — Assumptions About the Impact of Better Super

Date

The RIMGROUP model has been updated to align with the distributions of contributions and assets from the 2005-06 tax file, described above, and to ensure that aggregate flows and assets also align with benchmark data to the extent practicable. Exact alignment is not appropriate, for example for defined benefit funds where RIMGROUP contains only the funded part.

An additional issue related to alignment is member (non-concessional) contributions. A tax minimisation strategy has been available to retirees above preservation age, particularly those with working lives commenced before 1983, whereby they withdraw large sums from their superannuation accumulations tax free (usually $140,000 or more) and recontribute or recycle these amounts, often the same or next day. This strategy has given these individuals a larger ‘return of capital’, reducing the tax payable on an allocated pension in retirement. It is difficult to accurately estimate the scale of this, but the amounts probably exceed $10 billion a year. These amounts are irrelevant to RIMGROUP which aims to cover genuine flows rather than recycling. Accordingly adjustments have been made to exclude these flows. The Better Super arrangements greatly reduce the relevance of such strategies, as flows from taxed pensions for those aged over 60 have become tax free; the strategy is still relevant for those retiring after preservation age but before age 60.