Budget 2016/17: Making super fairer and sustainable

Has Scott Morrison delivered on his promise to make super fairer?

Budget 2016/17: making super fairer and sustainable

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.

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    COMMENTS

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    Karenglp
    4th May 2016
    11:24am
    So what for those nearing retirement and were planning to make significant super contributions.
    Rae
    4th May 2016
    2:04pm
    Go check it out. You can earn quite considerable income outside super without paying taxes and invest with much lower fees so you earn more over all. You also have complete flexibility and more important avoid the increasing sovereign risk of the government confiscating it all or some such thing one budget in the future.

    Think about considerable non concessional as it may not be the best saving vehicle. It is a tax minimisation strategy and there are plenty of other ways to minimise any taxes.
    Polly Esther
    4th May 2016
    11:34am
    He may have done his best, and in all fairness I believe he has, in his mind.
    But unfortunately for 'older folk at or approaching retirement' his best is behind the outhouse door.
    KSS
    4th May 2016
    12:49pm
    The main thing I think Mr Morrison got wrong is the reduction of concessional contributions to $25,000 a year for all with a lifetime cap of $500,000. And I assume the $25,000 includes the employer contribution as the $30,000 and $35000 does now.

    For those nearing retirement who currently take advantage of the transition to retirement pathway and sacrifice salary to super whilst drawing a small pension from super (an income neutral activity but tax beneficial) it may not be advantageous from 1 July 2016 even for those earning under the national average wage of around $80,000. Not much of an incentive to continue this course of action since it amounts to almost 30% reduction in concessional contributions for the over 50s. And this does not even take into consideration the move to tax the earnings that support TTR income streams as well.
    Rae
    4th May 2016
    2:14pm
    TTR is a blatant rip off of taxes and was not available to all workers so fails the discrimination test.

    Defined benefit scheme workers can't use it. In fact they get no tax concessions at all and in many cases work for decades for 6% less than colleagues in accumulation schemes.

    The whole superannuation experiment is fast unravelling.

    It was better before when most middle class,( and the lower paid income earners will never have enough super to live of so it is the middle income and above that use super,) and high income earners paid off the house, bought a second holiday home in a retirement area and saved a bit for a rainy day. They could sell the family home, help the kids out and they got the aged pension paid for with that7.5% tax they paid while working.

    It is a dog's breakfast now isn't it. And just who is raking up the savings now?

    You are correct when you say there is not much incentive.

    Now we have those people often worse off and
    KSS
    4th May 2016
    3:38pm
    Rae TTR IS/WAS available to all workers if they chose to use it and you do/did NOT have to be wealthy to do it. You just had to be willing to do so.

    "A defined benefit pension plan is a type of pension plan in which an employer/sponsor promises a specified monthly benefit on retirement that is predetermined by a formula based on the employee's earnings history, tenure of service and age, rather than depending directly on individual investment returns." So this is something that was agreed in the past that some people chose. You cannot now whinge about it if there are 'better' options that have come along over time. And how many people actually have these I wonder?
    Rae
    4th May 2016
    5:19pm
    It was agreed because it was compulsory and it is just as well there was an agreed benefit because the returns were appalling.

    It was not chosen at all but a requirement of the job.

    Just like superannuation is not chosen now but is compulsory for wage and salary earners.
    LiveItUp
    4th May 2016
    10:32pm
    I am very happy with my super and the returns it makes with the icing on the cake being that it is all tax free.

    I can also make quite a bit of income outside super before I pay any tax. With good returns outside super I am happy to pay the tax because to pay tax I have made money.

    Transition to retirement plus negative gearing was a good strategy for those making good incomes.
    LiveItUp
    4th May 2016
    10:32pm
    I am very happy with my super and the returns it makes with the icing on the cake being that it is all tax free.

    I can also make quite a bit of income outside super before I pay any tax. With good returns outside super I am happy to pay the tax because to pay tax I have made money.

    Transition to retirement plus negative gearing was a good strategy for those making good incomes.
    Rae
    4th May 2016
    2:36pm
    What is this fairer and sustainable newspeak Leon?

    There is absolutely nothing fair or sustainable about the current economy or political system for that matter. They have crashed the world and I suspect the bond bubble will burst just before the property bubble and take the share market with it. Superannuation will then be a very dirty word.

    Being able to off load all manner of dodgy debt instruments into our pension funds has been a gift to the Princes of Finance. Our productivity gains have not flowed through into our wallets and purses. It is definitely not fair or sustainable at all.
    leonYLC
    5th May 2016
    11:11am
    Hi Rae,
    I agree that calling the changes 'fairer and more sustainable' is debatable at best. We have quoted the Government's presentation of the changes, but have questioned it with our blurb which is "Has Scott Morrison delivered on his promise to make super fairer?"
    For an in depth, critical analysis of these changes, I highly recommend reading Debbie's piece in today's news 'Nothing fair about these changes' (here's the link: https://www.yourlifechoices.com.au/nothing-fair-about-these-changes)
    Cheers!
    Mez
    4th May 2016
    2:41pm
    I am happy with the budget!
    Dan
    5th May 2016
    12:53pm
    The Turnbull / Morrison Budget is a joke

    Huge cut is tax for companies 30 % down to 25 % is a 16.6 % cut down from current tax rate
    No personal tax cuts for any other income group apart than the $80,000 to $87,000
    $50 billion dollars for 12 subs that are not yet designed or tested just to get votes in South Australian marginal seats
    complete stuff up to superannuation with reduction in tax concessions in contribution limits and Member balance limits of $1.6 million savings after paying taxes of 15 % and sometimes 30 % when welfare and pension payments are not taxed anything
    The government is destroying the superannuation benefits and incentives to save for ones retirement after paying taxes and will result in further increase to retirees drawing on the aged pension


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