So, how will the changes to superannuation, proposed in Budget 2016/17 affect you? Here are some case studies provided by the Government that highlight, if legislated, what they will actually mean to individuals.
Bronwyn is a part-time worker who earns $20,000 in the 2017-18 income year. Her employer makes Compulsory Superannuation Guarantee payments of 9.5 per cent ($1900 per year) into Bronwyn’s account. Once in the superannuation account, Bronwyn’s contributions are taxed at 15 per cent ($285 per year). At the end of the year, Bronwyn will be eligible for a Low Income Superannuation Tax Offset of $285. Bronwyn now effectively pays zero tax on her superannuation contributions.
In 2017-18, Jamie earns an average full-time wage of $80,000 per year. His employer makes compulsory Superannuation Guarantee payments of 9.5 per cent of his salary ($7600 per year) into his superannuation account. Jamie makes no additional contributions to superannuation and is not affected by the changes. Jamie can still make additional concessional superannuation contributions of $17,400 either through salary sacrifice or by making a deductible personal contribution. If Jamie inherited some money, he could also put this in his superannuation (subject to the new $500,000 lifetime cap for non-concessional contributions).
Helping individuals with interrupted work patterns
Emma is a mother on maternity leave who is about to return to work part time. Emma, who earns $30,000 will be eligible for the Low Income Superannuation Tax Offset when she returns to work. Under the new changes to spouse contributions, her partner, Frank will be eligible to claim a tax offset of up to $540 for contributions he has made to Emma’s superannuation account.
Once Emma returns to full-time work, she will be able to boost her retirement income by making additional contributions. Enabling her to ‘catch up’ by rolling over the amounts left remaining under the concessional contributions cap, Emma can contribute more over her working life. Although Emma has changed jobs, she will also benefit from the Government’s changes to member protection measures, making it easier for her to reunite and consolidate her multiple accounts, including any in an Eligible Rollover Fund.
Saving for retirement
Gus is a 65-year-old retiree who currently draws down his account-based superannuation pension at the minimum rates, as he is concerned that his superannuation will run out.
As deferred income stream products do not qualify for the retirement phase earnings tax exemption, these products are not generally offered in the market.
Under this initiative, Gus will have the option to buy deferred lifetime annuity that will give him a guaranteed income stream for the rest of his life commencing from age 80. This will give Gus the confidence to have a higher standard of living in the intervening period and peace of mind knowing that no matter how long he lives [basic error!!!] he will receive a guaranteed income stream.