In the 2016 Federal Budget, the government announced a series of reforms designed to improve the sustainability, flexibility and integrity of the superannuation system. Since then, there’s been a lot of speculation on the impact these reforms could have on Australians saving for the future. The good news is, for most Australians the impact will be neutral or positive and super remains a very attractive place to save for retirement.
Note: it’s important to remember that the measures announced in the 2016 Federal Budget are proposals only and may, or may not, become law.
Why is super still very attractive for most people?
Superannuation will remain a very tax-effective place to save for retirement for the vast majority of Australians.
Pre-tax contributions and investment earnings while you build up your super are generally taxed at the low rate of 15%, not your marginal tax rate of up to 49%1.
When you retire, you can still transfer a generous amount into a superannuation pension, where no tax is paid on investment earnings and income payments are tax-free at age 60 and over.
Which measures are positive and why?
People who will benefit from the measures if legislation passes through parliament are summarised below:
|If you…||You will…||As a result of…|
|Earn less than $37,000 pa||Continue to pay no tax on concessional super contributions up to certain limits||The Low Income Superannuation Tax Offset replacing the Low Income Superannuation Contribution|
|Have a spouse that earns less than $37,000 pa||Benefit from the Spouse Contribution Tax Offset when making super contribution on behalf of your spouse||An increase in the income threshold that applies to lower income earners receiving super contributions from their spouse|
|Have ‘interrupted’ work arrangements, or ‘stop-start’ income and a lower super balance||Be able to make ‘catch-up’ concessional super contributions that exceed the annual cap||The ability to rollover unused cap amounts for up to five years|
|Aged between 65 and 74||Be able to make super contributions regardless of whether you’re working||Removal of the ‘work test’ that applies if you want to contribute between age 65 and 74|
|Want to make tax deductible super contributions||Be eligible to do so regardless of your employment status||Removal of the need to earn less than 10% of income from eligible employment|
What other changes are proposed?
The measures that have been introduced to ensure the super system is ‘sustainable, affordable and equitable’ will impact a small percentage of Australians, as summarised below:
|Measure||Key Government statistics and insights2|
|Introduction of a lifetime limit of $500,000 on non-concessional super contributions|
|Reduction in annual concessional contribution|
cap from $35,000/$30,000 (depending on age) to $25,000
|Reduction in income threshold above which individuals will be required to pay an additional 15% tax on concessional super contributions from $300,000 to $250,000|
|Introduction of a lifetime limit of $1.6m on the amount of super that can be transferred into ‘retirement phase’ accounts|
The information above has been prepared based on the announcements made by the Government in its Budget on 3 May 2016.
Find out more
For more information on the changes announced in the Budget, download our full Federal Budget Analysis. To find out more about how the changes could impact you, speak with us today on 07 5444 0675.
Important information and disclaimer
1 Includes Medicare levy and the Temporary Budget Repair Levy of 2% on taxable income exceeding $180,000.
2 Budget 2016 Super Facts Sheets
The information contained in this article is current as at 20 May 2016 and is prepared by MLC Technical, part of GWM Adviser Services Limited ABN 96 002 071749, registered office 150-153 Miller Street North Sydney NSW 2060, a member of the National Australia Bank Group of Companies.
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