Will your super be worse-off?

On Friday, Treasurer Wayne Swan and Minister for Financial Services and Superannuation, Bill Shorten, moved to end damaging speculation over the much-hyped changes to superannuation. Most of the changes may never actually be legislated, as it is unlikely the Government will be able to put the legislation through Parliament before the important 14 September 2013 election.

It is worth noting that not all measures announced on Friday will result in financial loss for those with superannuation savings. The majority using superannuation as a tool to fund retirement will see net benefits over the coming years. A breakdown of the main changes is as follows:

  1. Income from superannuation account-based income streams will be subject to standard deeming rules under the income test for Age Pensions from 1 July 2015.
  2. Earnings of $100,000 or more from super assets will be taxed at 15 per cent for every dollar over that threshold. Currently, based on a return of five per cent, this will affect only 16,000 people.
  3. For those over 60, the tax-free concessional contributions to superannuation will increase from $25,000 to $35,000 for those over 60 from 1 July 2013 and for those over 50 from 1 July 2014. There is also a plan to increase the level of concessional contributions to $35,000 for everyone from 1 July 2018.
  4. Those with notional earnings of more than $100,000 from a defined benefits fund will be taxed at 15 per cent for every dollar over that threshold.
  5. From 1 July 2013, f you accidently pay more than your allowed contributions to super in any year, you can withdraw excess contributions. These excess contributions will only be taxed at your marginal tax rate, rather than the current 46.5 per cent.
  6. The balance threshold at which inactive superannuation can be transferred to the Australian Tax Office will rise from $2000 to $2500 from 1 December 2015 and $3000 from 1 December 2016.
  7. A Council of Superannuation Custodians will be established.

These changes, if implemented, should encourage a review by every Australian of their individual superannuation arrangements, which is something that should be undertaken periodically.

Watch Minister Bill Shorten discuss the changes on ABC News. 

Read the full announcement on the website of the Minister for Financial Services and Superannuation.

Opinion: The wrong focus

While superannuation reforms of some description were expected, the timing of the announcement was in direct response to statements by back-bench renegade Simon Crean.

These reforms may never see the light of day, but fund managers say certainty has now been restored. Met with political and media cynicism, there have been claims that the reforms were to boost the Government’s bottom line pre-budget, but with the reforms bringing minimal savings and the timing, it seems unlikely that this is the case.

The announcement was met by the typical screaming headlines, such as ‘Grab for your superannuation’ and ‘Superannuation funds raided’, however, this is far from the reality.

The average superannuation balance of an Australian aged between 60 and 64 is approximately $198,000 for men and just $112,000 for women (source Challenger Retirement Income Research, April 2012). Therefore, for politicians and media to claim that the super funds of average Australians are being ‘raided’, by taxing those who have an annual income of $100,000 or more from super assets, is simply ridiculous. The changes will affect 0.4 per cent of the tax paying population, 16,000 of the country’s highest earners. Arguments have been tabled that these figures are modelled on a return of five per cent on investments and that if (a big if) these returns reverted to pre-GFC levels of 10 per cent, then 126,000 people with super balances of $1 million would be affected. Still not your average Australian.

Tony Abbott’s response was, “Every time a government raids people’s funds there are shades of Cyprus about it”. This from the man who has clearly stated that he will repeal the tax benefit to low-income earners, which amounts to an extra $500 in superannuation for those earning less than $37,000. Doesn’t really seem fair, does it?

However, it’s not just the super-rich who should be hoping these reforms never come to fruition. Buried in the detail of the reforms is the shocking news that the likelihood of claiming an Age Pension is about to diminish. Currently, income from superannuation account-based income streams receives concessional treatment, but for all new products commenced after 1 July 2015, standard deeming rules will apply. This means that the income limit may be exceeded. Although those who currently have such income streams will have their concessions grandfathered indefinitely, they will not be able to change products.

Also, it’s now time to search for your unclaimed super, with the announcement that the threshold balance for inactive super accounts will rise.

Do you think these changes will be implemented by the current Government? Will they affect your retirement savings?

Written by Debbie McTaggart