Understanding the proposed super changes (a middle-age guide)
Superannuation | 10/10/2016 |
3 min read
The Turnbull Government proposed a number of superannuation changes in the May 2016 Federal Budget. These amendments need to be passed in parliament before they can take effect.
Why does the government want to implement these changes?
The Government says the proposed changes are designed to make the benefits of super more equitable and focused on providing people with greater financial security in retirement, rather than being used as a tax-reduction and estate planning scheme by wealthier Australians. Any negative impact from the changes will mostly be felt by a relatively small and wealthy segment of the community, with low income earners continuing to receive assistance.
What are the proposed changes?
1. Changes to the concessional contributions (CC) cap
Translation: At the moment people can contribute up to $35,000 in annual pre-tax income towards their super account ($30,000 if they’re under 50). This money is taxed at a flat 15%, rather than the higher marginal tax rate. The proposed changes would reduce the contribution limit to a flat $25,000.
People who do not reach the yearly cap will be allowed to carry it forward for up to five years and $125,000.
Projected savings: $2.5 billion in ‘forward estimates’.
2. Lifetime non-concessional contributions (NCC) cap
Translation: There is currently an $180,000 annual limit on extra (after tax) contributions to your super. This will be revised down to $100,000 per annum. The proposed change will make it harder for high income earners to use super as a tax shelter. Plans to impose a $500,000 lifetime limit on after tax contributions first mentioned in the 2016 Federal Budget have been scrapped.
Projected savings: $550 million over four years.
3. Reducing the Division 293 threshold for high-income earners
Translation: Australians who earn over $300,000 a year and make pre-tax contributions to their super are currently charged 30% tax (rather than the standard 15%) on these contributions. The new law would reduce the income threshold to $250,000.
Projected savings: $2.5 billion over 4 years.
4. Taxing the Transition to Retirement Pension
Translation: Under the current laws people aged 55-64 who are still working can take advantage of a Transition to Retirement Pension (TRP). This was designed to let people scale back their work hours while accessing tax free income from their superannuation. In reality, it’s often used to reduce income tax. The proposed changes would tax any earnings in a TRP accounts at 15%, whereas they’re currently taxed at 0%.
Projected savings: $640 million over four years.
5. A pension transfer cap of $1.6 million
Translation: People with pension accounts are not charged any tax on their investment earnings. The proposed changes would limit the amount of money that can be deposited into these accounts at $1.6 million. Any additional savings would have to be housed outside of pension accounts, where earnings can be taxed.
Projected savings: $2 billion over four years.
6. Low income superannuation tax offset (LISTO)
Translation: The government will retain the contributions tax refund of up to $500 for low income earners. This is to help ensure many low income earners don't pay more contributions tax through super than they would pay in income tax outside of super.
Projected cost: $1.6 billion over four years.
Will I be impacted by all this?
There are four basic scenarios under which you may be impacted (assuming the legislation is passed).
1. You make more than $25,000 in contributions annually
2. You annual income exceeds $250,000
3. You have a super balance that exceeds $1.6 million
4. You plan to make larger voluntary contributions
How does the opposition feel about all this?
Labor has indicated its support for some of the proposed changes.
Speaking with the Financial Review, Treasurer Scott Morrison stated that he had briefed shadow treasurer Chris Bowen on the updated package, and that Labor has “no excuse whatsoever not to immediately support this. It removes every impediment that Labor has mentioned."
What happens next?
Parliament will be debating and voting on the above changes over the coming months.
Where can I get more information?
To find out more about the proposed superannuation changes and how they may affect your super and retirement please organise an appointment with an Equip Financial Planner. For more details click here.
This information is provided for general information only. It does not take into account your personal objectives, financial situation or needs and should therefore not be taken as personal advice. You should consider whether it is appropriate for you before acting on it and, if necessary, you should seek professional financial advice. Before making a decision to invest in the Equipsuper Superannuation Fund, you should read the relevant Equip Product Disclosure Statement (PDS). Past performance is not an indication of future performance. Issued by Equipsuper Pty Ltd ABN 64 006 964 049 AFSL 246383.