On Sunday, 2 May 2010, the Government released its response to the recommendations that came out of the Henry Tax Review. The Government’s response included changes to superannuation, which are summarised as follows:
Increasing the Super Guarantee (SG) rate to 12%
The SG rate will be increased gradually with incremental rises from 9% to 12% between the 2013-14 financial year to the 2019/20 financial year. The increase to the SG rate will be implemented as follows:
| 1 July 2013 |
9.25% |
| 1 July 2014 |
9.5% |
| 1 July 2015 |
10% |
| 1 July 2016 |
10.5% |
| 1 July 2017 |
11% |
| 1 July 2018 |
11.5% |
| 1 July 2019 |
12% |
It is expected that about 8.4 million employees will benefit from the measure. According to the Government, a 30 year old earning average full time wages will have an additional $108,000 in retirement savings (Herbert Geer Note: it is not clear what assumptions, if example, earning rates, this projection is based on).
We note that unions are already beginning to suggest that they will be making industrial pushes for the SG to be raised earlier by employers in their next round of industrial bargaining.
SG age to be raised
In order to recognise the fact that working Australians will still contribute to the workforce and in order to generate further retirement savings, the Government has decided to increase the age limit for SG contributions by employers from age 70 to 75. This measure will commence from 1 July 2013.
Around 33,000 employees are expected to benefit from the change and this measure will bring it in line with those self-employed people who can make deductible contributions until they turn 75. The commencement date of 1 July 2013 coincides with the initial increase in the rate of SG.
Superannuation - low income earners government contribution
The Government will provide a superannuation contribution (effectively, a rebate paid by contribution to a super account) of up to $500 annually for individuals on adjusted taxable income of up to $37,000 to improve the equity of superannuation taxation arrangements.
The amount of the Government contribution will be determined by applying a 15% matching rate to the concessional contributions made by or for individuals on adjusted taxable incomes up to $37,000 with an annual maximum amount payable of $500 (which is not indexed). The amount will be paid into the superannuation account of an individual to boost their retirement savings. All concessional superannuation contributions (employer, salary sacrifice or voluntary) made from 2012 to 2013 will be eligible for the Government contribution. However, this will be paid in the 2013 to 2014 tax year.
Effectively, this will mean that the measure will provide a 15% taxation concession on superannuation guarantee contributions to individuals who have a 15% personal marginal tax rate and will also remove the 15% tax penalty that individuals with a 0% personal marginal tax rate currently face in relation to their SG contributions (ie tax free).
We are of the view that there will be complications as we see this as possibly becoming a similar exercise to the superannuation contribution surcharge in regards to assessments and rebates as there may be some difficulties in the actual administration of the rebate, especially where individuals have not given Trustees Tax File Numbers.
The Government intends to consult with the superannuation industry on this measure and will release a consultation paper at that time.
Concessional contributions caps
The Government has decided to provide greater flexibility for those nearing retirement by continuing, from 30 June 2012, the higher concessional contributions cap of $50,000 (indexed) for those aged 50 or over who have total superannuation balances of less than $500,0001.
The measure is designed to allow those individuals to ‘catch up’ on their superannuation contributions at the stage in their lives when they are most able to do so. This measure may, for example, assist women with broken work patterns to make additional catch up contributions closer to retirement. Currently, the concessional cap for those aged 50 and over was a transitional cap of $50,000 which was scheduled to expire from 1 July 2012. Under this measure, from 1 July 2012 the $50,000 cap will be extended permanently for individuals aged 50 or over in relation to superannuation benefits of less than $500,000.
Whilst not specifically stated, we have assumed that for those individuals aged 50 or over with balances over $500,000, the concessional cap will reduce down to the current proposed level of $25,000.
Eligible individuals under the age of 75 will still be able to make non-concessional contributions to superannuation of up to $150,000 per year (with those under 65 still being able to bring forward two years worth of non-concessional contributions allowing them to contribute up to $450,000 of non-concessional contributions in any three year period).
The Government has stated that it will consult with the superannuation industry on the operation of the $500,000 threshold. We anticipate difficulties where a person’s balance fluctuates at a particular time. We are concerned that some people may inadvertently be in breach of the concessional caps limits and might be subject to the excess contributions tax.
Herbert Geer specific comments
It is also noted that the Government has ruled out for the moment plans for it to offer annuity products aimed at protecting retirees against the possibility of outliving their savings or having their incomes wiped out by collapses in asset prices.
The Australian Financial Review stated on 3 May 2010 that the Government has not ruled out pursuing long term securities to help annuity providers manage risk or, removing prescriptive rules that hinder product innovation.
The Government has stated that it has no intention of aligning the pension age (67) with the current preservation age regime (55-60).
In relation to salary sacrifice, middle income earners under the age of 50, who now sacrifice as much as possible into superannuation will not be any better off, however the ability to salary sacrifice into superannuation still remains.
1 The $50,000 cap limit for those aged 50 and over was previously to reduce in 1 July 2012 to $25,000. There was no $500,00 balance requirement.
Contacts
For superannuation enquiries contact:
Mark Abramovich on (03) 9641 8627 Email: mabramovich@herbertgeer.com.au
Marius Rajanayagam on (03) 9641 8615 Email: mrajanayagam@herbertgeer.com.au
For employment enquiries please contact in Melbourne:
Chris Hartigan on (03) 9641 8745 Email: chartigan@herbertgeer.com.au
Lucienne Mummė on (03) 9641 8661 Email: lmumme@herbertgeer.com.au
Louise Russell on (03) 9641 8657 Email: lrussell@herbertgeer.com.au
For employment enquiries please contact in Sydney:
Malcolm Davis on (02) 9239 4525 Email: mdavis@herbertgeer.com.au
For employment enquiries please contact in Brisbane:
Andrew Cardell-Ree on (07) 3853 8822 Email: acardell-ree@herbertgeer.com.au