On 5 April 2013, federal treasurer Wayne Swan, and Minister for financial services and superannuation, Bill Shorten announced a bucket of changes to the existing super arrangements. This article is a summary of the announced changes, and you can find more detail on the proposed changes in separate SuperGuide articles.
The federal government is going to make the following changes to your superannuation arrangements:
- New tax on pension assets. Introduce a new 15% tax on pension earnings beyond earnings of $100,000 a year – effective start date is 1 July 2014. See SuperGuide articles New tax on pension earnings over $100,000 and New tax on pension earnings (30 Q&As).
- No $50,000 cap for over-50s, but a $35,000 cap for over-60s at first. The government has killed the proposed $50,000 cap for over-50s, for those with less $500,000 in super. Instead, they plan to introduce an unindexed (smoke and mirrors) concessional contributions cap of $35,000 for individuals aged 60 and over, from 1 July 2013. The same unindexed cap of $35,000 will apply to those 50 years and over from 1 July 2014. See SuperGuide articles Gone but not forgotten: Concessional contributions cap for over-50s and Higher concessional contributions cap no longer applies for over-50s.
- Reform the excess contributions tax debacle. The federal government 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 ASTO), 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. See SuperGuide article What to do if you exceed your super contributions caps.
- Extend deeming rules for Age Pension so 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. See SuperGuide article Deeming rates for the Age Pension income test.
- 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.
- Increase the account balance size for treating super as lost. 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.
- Establish a Council of Superannuation Custodians. This council will monitor a proposed Charter of Superannuation Adequacy and Sustainability, and assess future policy against this Charter and report to Parliament.
For more information about these superannuation changes, see other SuperGuide articles, or refer directly to the federal government media release.