Robin Hood or the Sheriff of Nottingham?

Significant super reforms were proposed by the government for the 2016-2017 budget and, if legislated, these changes will bring about a major reform to our world class retirement savings system.

Your view of these changes will most likely be guided by which camp you’re in – the merry band taking from the rich and giving to the poor or the Sheriff of Nottingham’s army protecting the king’s wealth. Since the reforms are extensive and wide ranging, I will only highlight the major ones and keep commentary to a minimum.

Low Income Super Contribution to be retained as Low Income Superannuation Tax Offset. This means that individuals earning up to $37,000 per year who have a concessional contribution made on their behalf can receive a tax offset of up to a $500 cap. A major benefit for over 3 million low income earners, many of whom are women.

A $500,000 lifetime cap on non concessional contributions. This will limit large after tax contributions into super and is retrospective to 1 July 2007. The retrospectivity element could provide a legislative hurdle.

From 1 July 2017 everyone will have a concessional tax cap of $25,000 per year. This includes salary sacrifice plus employer contributions. This is a major change, which may not please boomers who are seeking to top up their super as a result of not having it all their working lives.

From 1 July 2017 a $1.6 million dollar transfer balance cap, which can be placed into a retirement (personal income stream or pension) account. As the earnings in the income stream phase are tax free, the government is seeking to limit the tax concessions wealthy individuals can access through retirement income streams. Amounts over the cap will have to be transferred back into a super account where tax is payable on the earnings.

From 1 July 2017 earnings from Transition to Retirement income streams will be taxed at a concessional 15% removing the current tax free status. Anyone under age 65 (or who has terminated employment after age 60) and is still working in some capacity in the lead up to retirement will no longer have the benefit of a tax free income stream account.

Anyone earning over $250,000 per year will pay 30% on pre-tax super contributions from 1 July 2017 lowering the threshold from the previous $300,000.

The work test is to be removed for people aged 65 to 75. This means that anyone within the age group will be able to make their own after-tax voluntary contributions from 1 July 2017 irrespective of employment status (subject to the caps).

Legislating the objective of superannuation “to provide income in retirement to substitute or supplement the Age Pension”. There has never been a bipartisan consensus on the purpose of super.

From 1 July 2017 individuals up to age 75 will be able to claim a tax deduction of up to $25,000 for their concessional super contributions. This extends the period when individuals can contribute to super and encourages this saving up to the cap.

The low income spouse super tax offset is proposed to increase from the current $10,800 to $37,000 extending the opportunity for an eligible contributing spouse to claim an offset of up to $540 per year starting on 1 July 2017.

From 1 July 2017 any individual with a total balance of less than $500,000 will be able to roll over the unused portion of their $25,000 concessional cap for the past five years. This will allow workers with broken work patterns to attempt to catch up with their super contributions when they are more able to do so.

It appears that the proposed measures aim to bring in more equity, fairness and integrity to the tax treatment of superannuation. It targets the top earners, removing many of the tax concessions they currently enjoy and makes concession to lower wage earners to assist them build their retirement benefit.

If you would like to understand the potential effect these changes will have on your superannuation strategy and other information about retirement, NGS Super is providing a special Retirement Planning Workshop in conjunction with the IEU.

Save this date: 6 July at the IEU, 485-501 Wattle Street, Ultimo. If you are interested in attending or registering to attend future workshops, phone 9273 7927 or email bhopping@ngssuper.com.au.

Bernard O'Connor
NGS Super
The information in this article is general information only and does not take into account your objectives, financial situation or needs. Before making a financial decision, please assess the appropriateness of the information to your individual circumstances, read the Product Disclosure Statement for any product you may bethinking of acquiring and consider seeking personal advice. Past performance is not a reliable indicator of future performance. Any opinions are those of the author and do not necessarily reflect the view of NGS Super.)