Super alert! For the latest summary on the super changes announced in the 2016 Federal Budget, and made law in November 2016, and to mainly take effect from 1 July 2017, see SuperGuide article Latest superannuation rules: 2018/2019 guide.
The 2016 Federal Election on 2 July will decide whether the Coalition’s announced super policies will go ahead, while the ALP has been unusually silent on its proposed super policies, apart from quietly reaffirming two policies, with one measure adopted by the Coalition.
The May 2016 Federal Budget, released on 3 May 2016, laid bare the Coalition’s intentions in terms of super and retirement (the dozen or so proposed changes are set out later in the article). The ALP made a preliminary response to the Coalition’s proposed super policies when the Opposition Leader, Bill Shorten made his budget-in-reply speech on the evening of 5 May 2016. In terms of superannuation, he had some interesting things to say, which we cover later in this article.
Note: This regularly updated article appears on the home page of the website, and this article will be the main source of information on super-related election policies until the election on 2 July 2016.
Continue reading for a summary of the current state of play in terms of legislated super and Age Pension changes, and officially announced super and Age Pension policies. We have structured the article into four sections:
- Super policies supported by both major parties
- Liberals/Nationals (Coalition) policies
- ALP policies
- The Greens policies
What super policies are supported by both major parties?
It is also worth identifying what super and retirement policies both major political parties support, and so are likely to remain in place (unless a political party changes their mind before or after the election). The big super policies that are in place and have bi-partisan support are:
- Super Guarantee increase over time. The SG rate will eventually increase to 12%, even though the Liberals delayed the timing. See SuperGuide article Liberals delay SG increase (12%) until July 2025.
- Low Income Super Contribution beyond 2017. In the 2016 Federal Budget, the Coalition announced the extension of the LISC (renamed the Low Income Superannuation Tax Offset) beyond June 2017. The ALP also wants the LISC to continue indefinitely, and both parties obviously support its retention until 2017, and its continuation post-July 2017 under the new name (if Liberals win the election, and under the existing name if the ALP win the election). See SuperGuide article Superannuation tax refund: 10 things to know about LISTO.
- Age Pension changes that took effect from January 2015, and included super pension assets in the Age Pension income test deeming rules. The ALP initiated this change, and the Liberals made it happen. See SuperGuide article Deeming rates for the Age Pension income test.
- How the Division 293 tax works: Super surcharge for high earners. Both parties support 30% tax on super contributions of high-income earners, and on 3 May 2016, the Coalition announced it was lowering the income threshold to $250,000 from July 2017. The ALP also wants to lower it to $250,000. See SuperGuide article How the Division 293 tax works: Super surcharge for high earners.
- Support for fixing the women’s super savings gap, but not much has been done. See SuperGuide article Women and super: How to beat the odds.
- Fairer excess contributions rules. Although both parties made positive changes to the draconian excess contributions tax rules, the Liberals did a bigger clean up. See SuperGuide article What to do if you exceed your super contributions caps.
Coalition’s 2016 Federal Budget announcements on super. Apart from the Low Income Super Contribution and the double contributions tax on high-income earners, it is not yet clear whether ALP support some of the announcements made by the Coalition on Budget night (see section below for Coalition’s policies). What the ALP leader, Bill Shorten, has stated is that the ALP is concerned about retrospective changes (that is, changes that apply to pre-existing account balances and previously undertaken strategies), which seems to indicate that if a change is prospective, rather than retrospective, the ALP may support it. If the ALP makes more definitive, and more specific announcements on proposed super policies, we will again update this article.
Age Pension changes: Changes to the Age Pension assets test are now law, and will take effect from 1 January 2017. More than 300,000 Age Pensioners will have their Age Pension entitlements cut, with just under 100,000 of those affected Australians losing all Age Pension entitlements.The successful passage through parliament was due to the Greens supporting the changes announced by the Liberal/Nationals government in the 2015 federal budget. Although the ALP opposed the changes, the ALP has stated it will not reverse these changes if it wins the 2016 Federal Election, due to budgetary constraints. More on this measure later.
What can you expect in terms of superannuation and retirement policies?
What policies have been announced in terms of super and retirement by the federal government, and by the other political parties leading up to the 2016 election? Now that the Coalition has released the 2016 Federal Budget (which reflects its 2016 Federal Election superannuation policies), we have a clearer idea of what the current government has planned for Australians in terms of super and retirement-related policies. The ALP has only announced a handful of policies, and has now admitted it will not reverse the Age Pension changes introduced by the Coalition. Interestingly, both major political parties have scarcely mentioned the super and retirement polices since the 2016 Federal Budget was announced.
And the Greens? They have environmental credentials but they have very little street cred on financial matters, especially superannuation policies. For example, the Greens supported the retrospective changes to the Age Pension that will hit hundreds of thousands of retirees in January 2017. The changes are so harsh (for Australians who will not be able to change their circumstances), that I suspect the Greens did not understand what they were agreeing to, or else they have sold retirees down the river of hardship. I don’t expect too much from the Greens in terms of super and retirement policies, although initially they had entered some type of ‘alliance’ with the Coalition (Liberals/Nationals), it seems that the Coalition is no longer an ally of the Greens.
Outlined below are the superannuation and retirement policies for the 3 major political parties:
- Australian Labor Party
- The Greens
Coalition (Liberal Party / Nationals)
The Coalition announced its super and retirement policy, via the 2016 Federal Budget on 3 May 2016. Federal treasurer, Scott Morrison is telling anyone who will listen that his proposed superannuation changes are not retrospective: what this means is that Scott Morrison claims that his announcements are prospective, and will only apply to future actions by Australians saving for retirement. I beg to differ, and I provide a short assessment at the end of each bullet below.
For a full rundown of the super policies announced on Budget Night, see the bullet list below:
- Introduction of a transfer balance cap of $1.6 million on retirement balances. Effective from 1 July 2017, “a $1.6 million superannuation transfer balance cap on the total amount of superannuation that an individual can transfer into retirement phase accounts.” The cap will be applied to “both current retirees and to individuals yet to enter their retirement phase.” This cap will be indexed in $100,000 increments, in line with increases in the consumer price index (rate of inflation). The financial consequence for current retirees affected by this policy is, if they have more than $1.6 million in pension phase, they will need to withdraw the excess balance or revert the excess amount to accumulation phase(which is then subject to 15% earning tax), by July 2017. Subsequent earnings on this pension balance, from July 2017, will not be required to be withdrawn. This measure is RETROSPECTIVE, because it applies to Australian super balances that have been accumulated in the past, under existing laws. The lack of grandfathering indicates this policy applies retrospectively. The ALP do not support this policy, but note the ALP has its own version of taxing pension earnings – see later in this article for the ALP’s policies. For more information on the Coalition’s policy see SuperGuide article Retirement phase: A super guide to the $1.6 million transfer balance cap .
- Lower the concessional contributions cap to $25,000. From 1 July 2017, the general concessional contributions cap will again be lowered to $25,000 from $30,000, and the over-50s cap of $35,000 will be dead from 1 July 2017. For more information, see SuperGuide article Cut to concessional contributions caps: the back story. This measure is PROSPECTIVE, and it is likely the ALP will support this measure.
- Introduce catch-up concessional contributions over 5-year period. The one upside to the cut in the concessional contributions cap, is that the Coalition government intends to introduce catch-up concessional contributions, from 1 July 2017. What this means is that unused portions of the concessional cap each year can be carried forward on a rolling basis for up to 5 years, for the annual caps applicable from July 2017, BUT ONLY IF YOU HAVE AN ACCOUNT BALANCE OF LESS THAN $500,000. This measure is partly RETROSPECTIVE, because you cannot use this catch-up policy if your existing super balance is larger than $500,000. The ALP is likely to support this policy. For more information, see SuperGuide article Cut to concessional contributions caps: the back story.
- Introduction of a $500,000 lifetime cap for non-concessional (after-tax) contributions. Taking immediate effect (from 7.30 pm on 3 May 2016), all Australians will be subject to a lifetime cap of $500,000 for non-concessional contributions. The $500,000 cap will be indexed annually to Average Weekly Ordinary Times Earnings (AWOTE). At first glance, this policy looks PROSPECTIVE, but the lifetime cap applies to all non-concessional contributions made since 1 July 2007, which makes it RETROSPECTIVE. Also, the immediate introduction of this rule means that those making financial plans for the 2015/2016 year have been hit hard, which again makes it a RETROSPECTIVE policy. There are also serious equity issues with how this policy operates. The ALP has not indicated whether it supports this policy, although the ALP has stated that it will not support retrospective policies. For more information, see SuperGuide article 2018/2019 guide to non-concessional contributions (after-tax super contributions).
- Extension of the Low Income Super Contribution, but renaming it the Low Income Superannuation Tax Offset. Individuals with an adjusted taxable income of $37,000 (or less) will continue to be entitled to a refund of contributions tax paid on concessional contributions, up to a limit of $500. Extending the LISC (LISTO) is a PROSPECTIVE and positive change supported by both major parties. For more information, see SuperGuide article Superannuation tax refund: 10 things to know about LISTO.
- Increase in the income threshold for spouse tax offset from $10,800 to $37,000. From 1 July 2017, the income threshold will lift to $37,000, from the current threshold of $10,800. A contributing spouse will be able to claim an 18% offset worth up to $540 for contributions made to an eligible spouse’s superannuation account. This measure will only cost $10 million over 4 years. This measure is a PROSPECTIVE and positive change, and likely to be supported by the ALP.
- More Australians to pay double contributions tax because of lowering of the income threshold from $300,000 to $250,000. From 1 July 2017, Australians with adjusted taxable income of $250,000 or more will be hit with extra contributions tax, which means all concessional contributions will be hit with 30% tax rather than 15% tax. Previously exempt fund members in certain public sector funds will also be subject to this extra tax. This measure is a PROSPECTIVE change supported by both major political parties. For more information, see SuperGuide article How the Division 293 tax works: Super surcharge for high earners.
- Removal of tax exemption for earning on transition-to-retirement pensions (TRIPs). In a shock move, from 1 July 2017, the Liberal government intends to remove the tax exempt status of earnings supporting a TRIP. This measure is a RETROSPECTIVE change that will hit existing TRIPs, as well as new TRIPs. Based on public comments, the ALP is unlikely to support this policy for existing TRIPs, but will support the policy for future TRIPs only, but has not yet confirmed its position. For more information, see SuperGuide article Did tax kill the transition to retirement magic pudding?.
- Removal of the option to treat a pension payment from a super fund as a lump sum withdrawal, for tax purposes. Individuals will no longer be able to treat certain superannuation pension payments as lump sums for tax purposes. Arguably, a RETROSPECTIVE change, although a change that affects how some Australians choose to structure pension payments, and more a clarification of super policy. Likely to be supported by the ALP.
- Expanding tax-deductible super contributions to all Australians. From 1 July 2017, the Liberal government intends to allow all individuals under the age of 75 to claim tax deductions for personal super contributions. Such a measure will assist Australians who may be partly self-employed and partly employed, or individuals who work for employers who don’t accommodate salary sacrificing. This measure is a PROSPECTIVE change, and the ALP has not yet confirmed whether it supports this change. For more information on how the current rules work, see SuperGuide article Who can now make tax-deductible super contributions?
- Removing work test for over-65s wanting to make super contributions. From 1 July 2017, Australians aged 65 year or over (and up to the age of 74) will be able to make super contributions without satisfying a work test. The work test is currently working 40 hours in a 30-day period in the financial year in which you plan to make the super contribution. Such individuals will also be able to receive contributions from their spouse under the contributions splitting rules (and presumably under the low-income spouse tax offset rules). This measure is PROSPECTIVE. The ALP has not yet indicated whether it supports this policy. For more information on how the work test applies until June 2017, see SuperGuide article Work test: Making super contributions over 65
- Removal of anti-detriment provisions. From 1 July 2017, super funds will not be able to pay a refund of a member’s lifetime superannuation contributions tax payments into an estate, and the super fund likewise will not be able to claim a tax deduction for this payment. The ALP has not yet indicated whether it supports this policy. For more information, see SuperGuide article Anti-detriment payments banned since July 2017.
- Extension of tax exemption on retirement products. From 1 July 2017, the tax exemption on earnings in the retirement phase will be extended to products such as deferred lifetime annuities and group self-annuitisation products.
Previously, the Coalition also made two quite dramatic law changes RETROSPECTIVELY affecting Age Pensioners (mainly part Age Pensioners):
- NOW LAW. Retrospective Age Pension changes taking effect from January 2017. I believe this will be huge election issue, especially because the ALP is against this change, but the Greens voted for it. Existing pensioners, who cannot change their circumstances, will receive a cut in the Age Pension. The fairer option would have been to grandfather existing pensioners, that is make the change PROSPECTIVE. See SuperGuide articles Commonwealth Seniors Health Card: What it is and how to apply and Age Pension: 300,000 Australians lost entitlements on 1 January 2017 .
- NOW LAW: Retrospective Age pension changes that took effect from January 2016. A lot of unhappy retired company employees and public servants have been retrospectively hit with a cut in Age Pension. The change is RETROSPECTIVE, and again I believe this change should have been grandfathered so existing pensioners, who cannot change their circumstances, were not hit. The ALP has been silent on this change. See SuperGuide article Age Pension income test rules (March 2019 to September 2019).
- NOW LAW: Aged care costs to jump from January 2017. For more information on the impact of the Age Pension reforms on aged care costs, see SuperGuide article Age Pension income test rules (March 2019 to September 2019)
Australian Labor Party
In April 2015, the ALP announced its official election super and retirement policy, and since then we have not heard much, except when the Opposition Leader, Bill Shorten gave his Budget-in-Reply speech on 5 May 2016, and when he confirmed that the ALP would not reverse the harsh Age Pension changes taking effect from 1 January 2017.
- Superannuation comments post-Budget. The ALP claims not to be a big fan of RETROSPECTIVE changes, that is, changes that affect Australians that have already concluded strategies to save for retirement, and who are then detrimentally affected for undertaking those strategies. On 5 May 2015, Bill Shorten stated: “Labor will gladly support our own clear and costed policy to close the unsustainably generous superannuation loopholes at the very top end… Labor’s reforms to maintain the fairness and integrity of superannuation however, will only ever be prospective and predictable – so people can plan for the future with security… Labor has very grave concerns about retrospective changes…”.
- Tax super pension investment income in retirement when reaches above $75,000. Before the 2013 election, the ALP was touting a threshold of $100,000, but in April 2015, the dropped the income threshold to $75,000. According to the ALP, “from 1 July 2017, future earnings on assets supporting income streams will be tax-free up to $75,000 a year for each individual. Earnings above the $75,000 threshold will attract the same concessional rate of 15 per cent that applies to earnings in the accumulation phase”. The ALP claim to against detrimental RETROSPECTIVE changes (as all political parties should be), but introducing a pensions tax on the earnings on pre-existing super pensions is without doubt a RETROSPECTIVE change, and makes the ALP’s claims of fairness as misleading as the Coalition’s claims of fairness in relation to its own retrospective super policies. For more information on the ALP’s pension earnings tax policy, see SuperGuide article ALP to tax pension earnings above $75,000 a year, if wins election.
- Age Pension changes taking effect from January 2017. The ALP is against the Age Pension assets test changes (that the Coalition introduced) due to their harshness and retrospective nature, but has since stated that it will not reverse these changes, due to budgetary constraints. I believe these changes are a significant election issue. See SuperGuide articles Commonwealth Seniors Health Card: What it is and how to apply and Age Pension: 300,000 Australians lost entitlements on 1 January 2017 .
- Contributions caps. Previously, the ALP has flagged that it intends to lower contributions cap, but the ALP has made no public comment since losing the election in 2013. On that basis, the ALP are likely to support the Coalition’s policy for cutting the concessional (before-tax) contributions caps including removing the over-50s cap, but unclear whether the ALP will support the immediate introduction of a lifetime non-concessional (after-tax) contributions cap of $500,000 (refer earlier in this article). For the current contributions caps, see SuperGuide article Superannuation contributions: Wearing two caps for 2018/2019 year (and 2017/2018 year).
- Temporary Budget Repair Levy. The extra 2% income tax on those earning more than $180,000 a year is supposed to end after the 2017 financial year. Both parties supported this Levy, but the Liberals plan to cease it from end of June 2017, while the ALP wants to continue it permanently. See SuperGuide articles Income tax: Australian tax brackets and rates (2018/2019 and previous years) and Debt ‘levy’: More income tax for high-income earners.
The Greens policy document on superannuation opens with “Superannuation in Australia has become a tax haven for the wealthy, rather than delivering a comfortable retirement for all…”
The Greens propose a new contributions tax system as set out below:
|Income plus super||Marginal Tax Rate||Super rate|
|$0-19,400||0 cents||0 cents|
|$19,401 – 37,000||19 cents||4 cents|
|$37,001 – 100,000||33 cents (37 cents from $80k)||15 cents|
|$100,001 – 150,000||37 cents||22 cents|
|$150,001 onwards||N/A||30 cents|
|$180,001 onwards||45-47 cents||30-32 cents|
Table source: The Greens website
If you want more information on this proposal, see the Greens fact sheet at this link.
The Greens believe a simple option is to remove the current flat tax rate of 15 percent for everyone, and replace it with a progressive system based closely on the individual employee’s marginal tax rate.
The Greens support the retention of the $30,000 concessional contributions cap, but are with the Coalition on scrapping the strategy to take a transition-to-retirement pension, while salary sacrificing.
Note: The Greens supported the Age Pension changes (dealing with how super pensions are treated for the Age Pension) taking effect from January 2017, and affecting more than 300,000 retirees, and hundreds of thousands future retirees. Not sure if cutting the income of Age Pensioners is tackling the wealthy issue (see SuperGuide article Age Pension: 300,000 Australians lost entitlements on 1 January 2017 ).