What’s going to happen with your super?

With more changes to your superannuation policy due to be passed by parliament in May 2013, here’s a summary of what they are – and the effect they may have on your nest egg:

Increased concession contribution cap:

What is it? Concession contributions include employer contributions (including salary sacrifice) and personal deductible contributions.

Why is it changing? The Government believes that it is important to allow people who have not had the benefit of the Superannuation Guarantee for their entire working lives to have the ability to contribute more to their superannuation as their retirement age approaches.

What are the new rates? Current pre-tax contributions and other super contributions are capped at $25,000 per annum. This cap will progressively increase to $35,000 per annum (from 1 July 2013 for over 60’s and from 1 July 2014 for over 50’s). This means, if you fit the age criteria, you’ll be able to contribute more into your super and save on tax.

Excess contributions refunds:

What are they? Contributions that are in excess of the annual cap attract the excess contributions tax (ECT). This means, concessional contributions in excess of the annual cap are taxed at the top marginal tax rate of 46.5%, rather than the normal (superannuation) rate of 15%.

Why are they changing? This ECT (tax) is a severe penalty for individuals with income below the top marginal tax rate.

What will the change mean? The Government will allow all individuals to withdraw any excess concessional contributions made from 1 July 2013 from their superannuation fund. In addition, the Government will tax excess concessional contributions at the individual’s marginal tax rate, plus an interest charge to recognise that the tax on excess contributions is collected later than normal income tax.

These rules will ensure that individuals are taxed on excess concessional contributions in the same way as if they had received that money as salary or wages and had chosen to make a non-concessional contribution.

This proposal represents a potentially significant tax saving

Tax on pensioner earnings over $100,000

Currently all earnings (such as dividends and interest) on assets supporting income streams (superannuation pensions and annuities) held in a super account are tax-free.

Why is this changing?  An individual with $100,000 of tax-exempt earnings typically receives more government assistance than someone on the maximum rate of the Single Age Pension. This reform will help make the superannuation system fairer and more sustainable, and will help restore a number of the original intentions of the system.

What are the new rates? From July 1 2014, only the first $100,000 in earnings per member will be tax-free. Earning above this level will be taxed at 15%.

Social security:

Currently income payments received from account based pensions are concessionally treated under the social security income test. From July 1 2015, the government proposes that account based pensions be treated the same as other financial assets. That is, they are deemed to earn a particular rate of interest. The government’s announcements so far do not clarify whether the existing income test rules for defined benefit pensions will change, nor is it clear if these changes will be applied to other non-account based income streams

Lost superannuation:

The Government has put in place a number of initiatives to help reunite members with lost super accounts.  These initiatives have proven highly successful, with the value of lost super held by funds falling. The government has also announced that the account balance threshold below which inactive accounts, and accounts of uncontactable members, are required to be transferred to the ATO will be increased to $2,000. This will help ensure these lost policies are protected from being eroded by fees and charges.

Capital Gains:

There are a number of other changes proposed that may affect capital gains on assets purchased before 1 July 2014. We suggest you speak to your Lindale Financial advisor for further clarification.

This article represents a summary of some of the proposed superannuation policy changes.  We’ve presented them so that you gain a general understanding of their potential impact on your superannuation policy. If you would like further information of their potential effects, please do not hesitate to contact your Lindale Advisor now

Go back to this month’s newsletter