UPDATE: The Liberal/National Party coalition won the September 2013 election. For a current list of the government’s current and proposed superannuation policies, see SuperGuide article Liberal Party’s superannuation to-do list (updated).
The official election campaign is in full force and we have some promises from both parties on what is going to happen to superannuation. The ALP federal government made key announcements on superannuation policy in October 2012, April 2013, May 2013 and in July 2013. While the Liberal Party/Nationals have responded to these announcements with its own version of superannuation policies, and rejection of some policies, and even acceptance of some of the government’s policies.
NDIS (DisabilityCare): Before we outline the superannuation policies promised coming into the federal election, we want to note the historic introduction of the National Disability Insurance Scheme (DisabilityCare), steered and negotiated by the Gillard government. The NDIS is a costly but necessary scheme that will enhance the abilities and quality of life of those Australians suffering disabilities, and the carers of these Australians. For more information on this transformational scheme, and how the NDIS will be funded see SuperGuide article Medicare Levy increase helps pay for NDIS (DisabilityCare) and the Disability Care website.
Who’s doing what in super politics?
ALP: As the political party in power, the Australian Labor Party clearly has the runs on the board in terms of superannuation policies but they have also made some whopper boo-boos along the way. See the list of policies later in this article, and also see related SuperGuide articles 2013 Federal Election: new super changes summary (April 2013) and 2012/2013 Mid-year Economic and Fiscal Outlook (MYEFO), and Super tax freeze! No tax changes to super for 5 years, promises ALP,for additional detail on federal government superannuation announcements.
The Liberals/National Party: The Coalition seems to be struggling with the concept of superannuation. The Coalition has lost a lot of their super knowledge over recent years with the retirement of many senior MPs, including Peter Costello, who was the architect of the 2007 changes that brought in tax-free super for over-60s, introduced caps on non-concessional contributions, reduced the caps on concessional contributions, and removed limits on the amount of super that you could withdraw at concessional rates. The Coalition has promised not to make any unexpected negative changes to super, but hey, a few weeks after making that promise, they announced they were freezing the Superannuation Guarantee increase for 2 years. The Coalition has also promised to withdraw the policy delivering a refund of contributions tax to low-income earners, which is a concern since the LISC (see section later in this article) is an equity measure to ensure individuals on low marginal tax rates are not penalised financially by the super tax system.
The Democrats: The Democrats have developed a list of broad policies that essentially reflect existing superannuation law, but also push for more disclosure of super fees, and tax concessions on catch-up super contributions for Australians who take time out of the workforce for family obligations. For more information on the Democrats superannuation policies see this link.
Big-ticket super policies
- Tax-free super for over-60s
- Increase Superannuation Guarantee to 12%
- Low Income Super Contribution (LISC)
- Super tax freeze! No tax changes to super for 5 years, promises ALP
- Higher concessional contribution caps for over-60s, and eventually for over-50s
- Double tax on concessional contributions for high-income earners
- New tax on pension earnings above $100,000
- Liberal Party’s parental leave policy dilutes franking credits on dividends
- Extend Age Pension deeming rates to new super pensions
- Soften penalties for excess concessional contributions
- Seniors Health Card to be indexed
- Military super benefits to become fairer
- Super changes affecting SMSFs, from July 2013 (for list of new SMSF rules see separate SuperGuide article Changes to SMSF rules, from July 2013)
- Move more ‘lost’ super accounts to the ATO
- Moving super between Australia and NZ now possible
- Extend small business clearing house to enable access for employers with up to 100 employees
- Introduce a Super Charter and Council of Custodians
- Establish a Financial Systems Inquiry
- Establish a Superannuation Consumer Centre
- More super changes, announced in previous years
It is early days in the election campaign although both parties have promised no more changes in superannuation (ha!). Outlined below is what the major parties have promised on the big-ticket superannuation issues.
Former Prime Minister Gillard promised that tax-free super for over-60s is to remain in place, and PM Rudd has confirmed this position. I question why the current government kept on leaking the possibility of taxing the super benefits of over-60s if they were not intending to re-introduce tax on super benefits received from over-60s at some later date. In April 2013, the federal government did announce a new tax on pension earnings (rather than benefit payments) on earnings that exceed $100,000 a year. See separate section later in this article.
The Liberal Party/National Party Coalition is silent on whether they intend to retain tax-free super for over-60s but what the Coalition has said is: “We will ensure that no more negative unexpected changes occur to the superannuation system so that those planning for their retirement can face the future with a higher degree of predictability.” I am not really sure what this statement means, but I am guessing that they mean if they do tax super benefits, or any other ‘negative’ type of super policies, that they will give lots of notice. For example, they have given 12 months’ notice that they intend to freeze the SG increase for 2 years if they win the election (see text later in the article).
For more information on this pre-existing super policy see SuperGuide article Tax-free super for over-60s to stay, promises PM.
Effective from 1 July 2013, the ALP federal government has increased Superannuation Guarantee contributions from 9% to 9.25%, and will progressively increase SG contributions to 12% by 2019. This SG increase is a huge policy and I believe will help many Australians. For more information on the government’s policy, see SuperGuide article Superannuation Guarantee increases to 12%, eventually.
The Coalition was initially against this SG increase but they then promised not to rescind the policy if they win the election. In May 2013 however, the Coalition announced that they intend to freeze the SG increases for 2 years, which means that the SG rate would remain at 9.25% until June 2016. For more information on the Opposition party’s proposed policy, see SuperGuide article Liberals renege on SG increase, and no LISC.
Note: SG for over-70s. In a related super policy change, effective from July 2013, eligible employees who are 70 years or older will receive Superannuation Guarantee (SG) payments from employers. The current SG rules stop SG entitlements when an employee turns 70 years of age. For more information on this change, see SuperGuide article SG to be paid for over-70s from July 2013.
Important: If you’re subject to a total remuneration package, you may have been contacted by your employer that your total package will remain the same as before, and any increase in Superannuation Guarantee contributions from 9% to 9.25% will mean less take-home cash salary. Unfortunately, neither party has rectified this issue for employees. For more information see SuperGuide article Superannuation Guarantee: Many Aussies miss out on SG increase.
Effective from 1 July 2012, the ALP introduced a super tax refund for low-income earners, who were previously penalised with higher super tax than what they paid in income tax on their own income. If you earn less than $37,000 a year, and your employer makes concessional (before-tax) superannuation contributions on your behalf, then you can expect a refund of the contributions tax deducted from your super account, paid directly to your superannuation account by the federal government.
Note: The Coalition does not support the LISC and plans to reverse the legislation currently in place. The LISC is long overdue, and a super policy no-brainer from my point of view. The decision to reverse it by the Coalition is risky, but politically motivated because the ALP claimed the LISC would be funded by the proceeds of the Mineral Resource Rent Tax.
For more information on the LISC policy see SuperGuide articles Super tax refund for lower-income earners starts July 2012 and Superannuation tax refund: 10 things you should know.
According to the ALP, the freeze on changes to super taxes commences immediately, that is, from 31 July 2013, and will continue for the next 5 years (but only if ALP is re-elected). The change of heart by the ALP goes even further than no tax changes to super: any changes to super will only be made to the super system every 5 years. Pardon me if I am incredulous about this 31 July 2013 announcement. While the Coalition have promised to give plenty of notice for any changes to super. For more information see SuperGuide article Super tax freeze! No tax changes to super for 5 years, promises ALP.
The ALP has removed the special cap for over-50s and failed to index the existing concessional contributions cap for 6 years. On 5 April 2013, the ALP promised to re-introduce a revised over-50s cap from July 2014, and a special over-60s cap from July 2013 (see related SuperGuide article Temporary concessional cap for over-60s from July 2013).
The Coalition has been generally vague on this issue but it is fairly safe to assume that they would support the $35,000 cap for over-60s from July 2013, and the $35,000 cap for over-50s from July 2014. In addition, the Coalition have publicly stated that the Coalition will “revisit concessional contribution caps and super co-contributions for low-income earners once the budget is back in a strong enough position.”
For more information on contributions caps see SuperGuide articles New concessional cap for over-60s, and for over-50s and Super concessional contributions: 2012/2013 survival guide and Your 2012/2013 guide to non-concessional (after-tax) contributions.
In the May 2012 Federal budget (rather than the 2013 budget), the Federal government announced an extra tax would be imposed on the concessional contributions of anyone earning more than $300,000. Effective from 1 July 2012 (2012/2013 year), the government has increased the contributions tax for high-income earners to 30%. The usual contributions tax is 15%. For more information on this new tax see SuperGuide article Double contributions tax for high-income earners.
In April 2013, the ALP federal government announced that it planned to introduce a new 15% tax on pension earnings above pension earnings of $100,000 a year – effective start date is 1 July 2014. If your superannuation pension earns more than $100,000 a year in earnings then expect to be hit with 15% tax on your pension earnings above $100,000, subject to legislation. The threshold applies to each individual rather than to each pension/income stream. Note that the new tax applies to earnings on a pension account, rather than on benefit payments. For more information see SuperGuide articles New tax on pension earnings over $100,000 and New tax on pension earnings (30 Q&As).
The Coalition has been silent on this proposed policy which generally means if it becomes law, then the Opposition won’t change the existing law. No legislation is yet in place for this proposed change.
Note 1: Tax-free pension earnings on death of pension recipient. In a related policy change, pension earnings remain tax-free after the death of the pension recipient, when there is no reversionary beneficiary. This government announcement partly neutralises an ATO ruling released in July 2013. For more information see SuperGuide article, Confirmed! Pension earnings remain tax-free after death
Note 2: Deferred lifetime annuities. In a related super policy change, the federal government has announced it intends to extend concessional tax treatment to deferred lifetime annuities, which means these products have same concessional tax treatment as superannuation assets supporting super pensions. This change takes effect from 1 July 2014, subject to legislation.
The Liberal Party’s Parental Leave policy imposes a 1.5% levy on the largest 3200 companies in Australia (any company that has a taxable income in excess of $5 million) to fund the PLP. The PLP will not be imposed on companies that have a taxable income of less than $5 million. In the Liberal’s policy document they state: “The Coalition will also provide a modest company tax cut from 1 July 2015. For large companies this will offset the cost of the paid parental leave levy, while for smaller and medium-sized companies this will be a further boost to their competitiveness, helping them to expand and create jobs.” The contribution by the super fund members of Australia, in particular SMSF members, is the indirect result of the imposition of a 1.5% levy on large companies, and a drop in company tax at the same 1.5% rate. Why does this affect super funds and other share investors? Fully franked dividends paid by companies come with franking credits that offset income tax payable by the investor. If the company tax rate drops to 28.5%, so does the level of franking credits. For more information see SuperGuide article, Liberal’s parental leave policy dilutes franking credits on dividends.
In April 2013, the ALP federal government announced that it intends to extend the deeming rules for the Age Pension so the deeming rules apply to new superannuation pensions from 1 January 2015.
The government proposes to extend the deeming rates applicable to financial investments (when assessing against the Age Pension income test), to also apply to new superannuation pensions started on or after 1 January 2015. Currently, superannuation pensions are counted against the Age Pension income test through a special calculation that recognises the return of capital that forms part of every super pension payment. According to the government, all products held by pensioners before 1 January 2015 will be grandfathered indefinitely and continue to be assessed under the existing rules for the life of the product so no current pensioner will be affected, unless they choose to change products. This change is likely to cause a lot of confusion, and create a massive number of unhappy retirees. For more information on this retirement policy, see SuperGuide article New income test rules mean less Age Pension.
Note: Age Pension and downsizing your home. In a related change, the government announced that from 1 July 2014, senior Australian homeowners who have owned their family home for at least 25 years may be able to downsize without losing Age Pension entitlements.
On 5 April 2013, the federal government announced that it will allow individuals to withdraw any excess concessional contributions made from 1 July 2013 from their super fund. These excess contributions will be taxed at the individual’s actual marginal tax rate, plus an interest charge (as would happen for income tax paid late to the ATO), rather than the top marginal tax rate. If you’re already on the top marginal tax rate, then you will be hit with a new interest charge. For more information on excess contributions tax see SuperGuide article Excess contributions tax: how the new rules work.
The Inspector-General of Taxation is currently reviewing the ATO’s handling of excess contributions tax issues. The ALP has mishandled this issue and seem to believe that only ‘rich’ people have these types of issues and so why should they bother trying to fix it. There also seems to be inference that Australians who are trying to save for retirement, and through no fault of their own are hit with penalty tax, are dishonest or tax cheats.
The Coalition has promised to: “Properly address the issue of excess contributions to make sure Australians savings for their retirement are not unfairly penalised for genuine unintended errors.” Presumably the Coalition supports this latest announcement from the federal government.
If the Liberals win the election in September 2013, they promise to index the income thresholds for the CSHC every year, in September, starting from September 2014, in line with the Consumer Price Index. The cost of this new measure will be $100 million over the next 3 years, with an expected 20,000 retirees becoming eligible for the CSHC by the 2016/2017 year, due to the new indexation measure. For more information see SuperGuide article Great news! Seniors Health Card to be indexed, say Libs.
In uncharacteristic bipartisan support, both sides of politics have acknowledged that the indexation method for defence force superannuation benefits needs to be improved, to maintain the purchasing power of the pensions payable and to maintain the living standards of the pension recipients. The new indexation policies for the defence force schemes announced by the 2 main political parties are slightly different to each other, but both are better than what is currently in place. For more information see SuperGuide article Military super benefits to become fairer, but still work to do.
In the 2012-2103 Mid-Year Economic and Fiscal Outlook, the government announced that from 1 July 2013, inactive accounts of $2,000 or less would be transferred to the ATO, and they would receive ‘interest’ equivalent to CPI increase. From 31 December 2015, the inactive account threshold will increase to $2,500, and from 31 December 2016, will increase to $3,000. And hey presto, a month later, in August 2013, the newly appointed Treasurer, Chris Bowen upped the inactive account thresholds again. From 31 December 2015, the inactive account threshold will instead increase to $4,000, and from 31 December 2016, instead increase to $6,000. For more information on this change to the treatment of lost super accounts see SuperGuide articles Lost super makes money for everyone and Fee hike for small super accounts.
Effective from 1 July 2013, Aussies are able to transfer superannuation benefits to KiwiSaver schemes and New Zealanders will be able to transfer retirement savings to an APRA-regulated super fund (that is, all types of super funds except for a self-managed super fund). For more information on this change, see SuperGuide article At last! Moving super between NZ and Australia will be possible.
In July 2010, the ALP Federal Government launched a free superannuation clearing house for businesses that have up to 19 employees. In September 2013, the ALP announced that access to the clearing house would be expanded to businesses with up to 99 employees, effective from 1 July 2014, if the ALP wins the federal election. For more information see SuperGuide article SG paid easy: just add DHS (SG clearing house).
In April 2013, the federal government announced that it intends to establish a Council of Superannuation Custodians. This Council will monitor a proposed Charter of Superannuation Adequacy and Sustainability, and assess future superannuation policy against this Charter. The Council will then report annually to Parliament, including recommending improvements to the super system.
In May 2013, the Minister for Superannuation, Bill Shorten, announced that he had appointed a steering group (Charter Group) of 5 individuals to develop the proposed Charter and to provide advice on how the Council of Superannuation Custodians will be established. On 9 May 2013, the federal government released a discussion paper to kick-start the development of the ‘Charter of Superannuation Adequacy and Sustainability’ and the ‘Council of Superannuation Custodians’. In July 2013, the steering group provided a report and draft charter.
For more information on the Charter and the Council see SuperGuide article Super Charter and Council of Custodians: Have your say by 21 June 2013, and the steering group’s report (at this link).
The Opposition has stated that the appointment of an APRA representative to the Council steering group creates a conflict of interest, and my understanding is that the Opposition doesn’t believe the Council is necessary.
The Coalition wants to conduct a financial systems inquiry, including a focus on superannuation. Blimey, not another one.
In October 2012, the federal government promised to set up a Superannuation Consumer Centre Investment Fund, and the earnings from this special fund can then be used “to fund the ongoing costs of a non-profit organisation with a primary focus on superannuation policy research and advocacy,” known as the Superannuation Consumer Centre.
The Government’s contribution of $10 million over 3 years ($1 million during 2012/2013, $2 million during 2013/2014, and $7 million during 2014/2015 year) must be matched by the superannuation industry, or there will be no investment fund. If the super industry doesn’t cough up the extra dough, the government will withdraw its financial commitment. For more information on the Superannuation Consumer Centre see SuperGuide article Superannuation Consumer Centre: A great idea, but… where is it?
The federal government has become adept at announcing new super policies using a drip-feed approach, which makes it very difficult to keep track of everything they have changed in the super system. The list below is a batch of announcements from previous years which have taken effect this year, or will take effect in the 2013 financial year, or in future financial years.
- Commissions banned on new financial products. From 1 July 2013, there is a ban on commissions and volume-based payments and any other type of remuneration structure that creates a conflict of interest for the adviser. The ban applies to all retail investment products including managed investments, superannuation and margin loans but the ban won’t apply to risk insurance products. Advisers must also act in the best interests of clients and also not charge asset-based fees on borrowed money.
- Tax advice. Financial advisers who provide tax advice must comply with the tax agents regime, effective from 1 July 2013, although they will have a 3-year transition period to get used to the idea.
- Accountants and a limited advice licence. From 1 July 2013, accountants who hold a public practice certificate from one of the 3 professional accounting bodies can apply for a limited licence which allows them to advise on superannuation, basic deposit products, insurance, shares and managed schemes. The limited licence will be easier to obtain than a full licence, although it will not be possible to provide product-specific advice, rather ‘class of product’ advice is permitted. If an individual wants to give product-based advice, then a full licence is required.
- Accountants and financial advice. The existing licensing exemption for accountants (in relation to SMSFs) is to be extended until 30 June 2016 (rather than June 2014) to give the industry time to undertake training or processes required to meet the new rules.
- Frozen contributions caps. Freeze contributions caps for 2012/2013 and 2013/2014 years
- Cut in co-contributions. Halve co-contribution payments and reduce income threshold for eligibility from 1 July 2012
- Changes to LISC. Exclude some low-income earners from the Low Income Superannuation Contribution (LISC) (introduced from 1 July 2012). For more information see SuperGuide article Super tax refund for lower-income earners starts July 2012.
- MySuper coming to a super fund near you. From January 2014, only superannuation funds that meet the MySuper standards will be able to accept compulsory employer contributions (Superannuation Guarantee) for those Australians who have not chosen their super fund. For more information see SuperGuide article MySuper: Coming to a super fund near you.
- Golden handshakes taxed more. From 1 July 2012, an individual will only receive the ETP tax offset on an ETP that takes an individual’s total taxable income to no more than $180,000. Any amounts above this amount will be taxed at the person’s marginal tax rate.
- Mature Age Worker Tax Offset (MAWTO). From 1 July 2012, the MAWTO will be phased out for individuals born on or after 1 July 1957. If you are 55 years or older during the 2011/2012 year, then you remain eligible. A work bonus replaces MAWTO.