HOW SUPERANNUATION RULE CHANGES CAN CHIP AWAY AT CONFIDENCE

Trust is a funny thing. It takes decades to build and only moments to lose. I was recently away when the Federal Government announced changes to lending rules for Self Managed Super Funds (SMSFs). The policy itself surprised me, but not as much as what it represents. Unlike negative gearing and even the proposed capital gains tax changes, which had at least been lurking around publicly for some time, this change touched something much deeper than property.

It touched trust. I’m not talking about politics. I’m talking about superannuation. For more than 30 years Australians have accepted compulsory superannuation because there has been an unwritten agreement. Governments would encourage us to save for retirement through tax concessions and in return Australians would lock away part of every pay packet until retirement. Before compulsory superannuation, Australians largely relied on the Age Pension, supported by whatever personal savings they could accumulate.

When compulsory employer contributions began in the early 1990s they started at just three per cent of wages. Today they’re 12 per cent! The idea was simple. Governments would forgo some tax revenue today in exchange for fewer Australians relying solely on the pension tomorrow. Over time many Australians chose to take greater control of those savings through Self Managed Super Funds. That meant investing in shares or commercial property and, for others, residential property, often using limited borrowing arrangements that had been permitted under the rules.

Now, one of those investment options has been narrowed. SMSFs can still invest in residential property, but borrowing to acquire it is no longer available under the new rules.Whether you agree with that particular decision or not almost misses the point. Every significant change to superannuation chips away at something far more valuable than a tax concession. It chips away at confidence that the rules Australians planned their retirement around will remain reasonably consistent.

Most don’t understand every investment available to them, but they understand residential property. They can see it, improve it, rent it and pass it on to the next generation. Restricting that choice inside super may well suit broader housing policy, but it inevitably leaves some Australians wondering what rule might change next.