The government has confirmed the changes to the superannuation system which
had been announced earlier this year. A succession of governments have tinkered
with the superannuation system so that it is now quite complex, and not easily
understood by people outside the industry.
Most people in the workforce have superannuation and are at varying points
along the path to retirement. If legislated, these changes could affect their
financial future, so it is important for everyone to understand what has been
proposed. They will impact many fund members, before and after retiring, whether
they are in industry funds, public funds or whether they have an
SMSF.
Concessional Contribution Cap to Increase
The concessional contribution cap will increase from $25,000 to $35,000,
phased in over two years. For people aged 60 and over, the cap will increase
from 1 July 2013, and for people aged 50 and over, from 1 July 2014.
Concessional contributions include employer contributions (including salary
sacrifice) and personal deductible contributions. This is a positive measure but
is still a long way short of the $100,000 limit over 50’s under the previous
government.
As from 1 July 2013, concessional super contributions that exceed the cap
proposed above will be allowed to be withdrawn. Lower and middle-income earners
could benefit from this proposed change, as the withdrawals will be taxed at the
taxpayer’s marginal rate plus interest. Currently, excess concessional super
contributions are taxed at 46.5%.
Changes to Tax on Pension Earnings over $100,000
There is a change proposed to the tax on pension earnings over $100,000, and
the super industry is looking for more details from the Government to assess the
full effect this will have. From 1 July 2014, only the first $100,000 of
earnings per member (in pension mode) will be tax free, and anything over that
amount will be taxed at 15%. Currently, all these earnings are tax free. Current
thinking is that this will only affect pension members with around $1.5 to $2
million or if the fund makes a capital gain through the sale of assets that
takes its income over $100,000. This means however SMSF trustees may have to
consider the timing of asset sales as part of their tax planning strategy.
Account-Based Pension Changes Could Affect Age Pensions
Social security changes to account-based pensions are also proposed, but will
not take effect until 1 July 2015. Account-based pensions will be treated the
same as any other financial asset and deemed to be earning a particular rate of
interest, regardless of what is actually being earned. Current treatment of
account-based pensions is for all income payments to be concessionally treated
under the social security income test.
Although it will not apply to account-based pensions started before 1 July
2015, it will likely affect age pensions if introduced, and therefore needs
watching for further information and updates.
For further information on the Federal Budget, see our budget summary.
