In the words of Treasurer Scott Morrison, Budget 2016/17 is about “assisting older Australians by making super fairer”. So, has he delivered on his promise?
Enshrining super’s objective in legislation
Following recommendations of the Financial Systems Inquiry (FSI), the Government will enshrine in law the objective of superannuation as a stand-alone act. The objective of superannuation is to provide income in retirement to substitute or supplement the Age Pension.
This objective is being seen as the anchor for changes to superannuation in Budget 2016/17, which should make the system more sustainable by encouraging saving, preventing high earners using super as estate planning and maintaining flexibility to suit different work patterns and employment arrangements.
These changes will not adversely affect retirees and pre-retirees unless they:
- make more than $25,000 in super contributions per year
- have a combined income (including super contributions) of more than $250,000 per year
- have a super balance in excess of $1.6 million, or
- plan to make more than $500, 000 in non-concessional contributions.
So, which superannuation changes has Budget 2016/17 delivered?
Lowering of superannuation concessional cap
The current cap limits of $30,000 for those under 50 and $35,000 for those over 50 will be lowered to a flat $25,000 regardless of age. This measure will take place from 1 July 2017.
Those with superannuation balances under $500,000 will be able to roll forward their concession cap for a period of five years, allowing those with interrupted work patterns to boost their superannuation balances. For example, if only $18,000 of concessional contribution were paid in one financial year, an individual could make concessional contributions of up to $32,000 the following year.
This measure will affect around three per cent of superannuation fund members. Along with lowering of the threshold at which 30 per cent tax is paid on concessional contributions, this measure is expected to deliver revenue of $2.5 billion over the forward estimates period until 2020.
Low Income Superannuation Tax Offset
The Low Income Superannuation Tax Offset (LISTO) will replace the Low Income Superannuation Contribution (LISC), which was scheduled to cease on 30 June 2017. From 1 July 2017, for low-income earners who earn less than $37,000, the LISTO will provide a non-refundable tax offset of up to $500 to a member’s superannuation fund. This is to cover the cost of tax paid on superannuation contributions.
This measure is designed to help boost the superannuation balance of low-income earners and will have an associated cost of $1.6 billion over the forward estimates period until 2020.
New contributions rules for older Australians
The Government hopes to help boost superannuation balances for older Australians by lifting restrictions on voluntary contributions for those aged 65-74. Currently, anyone over the age of 65 wishing to make contributions to super needs to satisfy minimum work requirement tests. After 1 July 2017, the same voluntary contribution acceptance rules will apply to all individuals up to age 75. They’ll also be able to receive contributions from their partner.
These changes aim to give older Australians with lower super balances the ability to contribute more towards their retirement savings from alternative sources that may not have been available to them during their working years, such as from the sale of downsizing their home.
The measure is expected to cost around $130 million over the forward estimates period until 2020.
Improving the super balances of low-income spouses
Increased access to the low-income spouse superannuation tax offset should help to boost the retirement savings of those with irregular work patterns – especially women. There has been much made of making superannuation fairer for women who, during their working life may have taken years, perhaps decades, off work in order to raise children.
In order to help partners support each other with saving for retirement, the current income threshold for low income spouses will be lifted from $10,800 to $37,000. Contributing spouses will receive up to $540 annually to help offset any tax paid on superannuation contributions made to their partner’s fund.
This measure is designed to help bolster super balances for homemakers – particularly women – and is expected to cost around $10 million over the forward estimates period until 2020.
Changes to retirement income products
The development of new retirement income products is restricted by rules and regulations. In an effort to deliver more flexible products to Australian retirees, the Government will remove certain barriers to enable the creation of new products. From 1 July 2017, products such as deferred lifetime annuities, which give individuals a guaranteed income stream from a predetermined age, will benefit from the extension of the tax exemption on earnings in the retirement phase.
However, the assessment of income from such products in relation to the Age Pension means test has yet to be determined.