The recent Federal election and resulting makeup of the two houses of Parliament has created a lot of legislative uncertainty, particularly relating to the proposed superannuation changes announced in the Federal budget in May. Many within the Coalition consider their poor showing in the election had a lot to do with these proposed changes and since claiming victory a week or so ago, there has been plenty of talk of tweaks being made to their proposed rules to appease many disgruntled party members.
One thing we need to remember is the Australian superannuation system is revered around the world. The measures introduced in the early 90s were pivotal to ensuring the Australian public provisioned for their retirements resulting in a significant future burden taken from the Government. We have built up one of the largest pension schemes in the world with now in excess of $2 trillion of assets in the Australian superannuation system. When you compare this to pension schemes and sovereign wealth funds around the world, this is an enviable position. The Government needs to be careful not to continually move the goal posts which will erode peoples’ confidence in the system.
It appears as though the proposal that may be altered and which has received the most attention is the lifetime limit imposed on after-tax (non-concessional) superannuation contributions, particularly the perceived retrospective nature of this rule. As proposed, a lifetime limit was introduced for after-tax contributions of $500,000. This includes contributions made from 1 July 2007. We will watch this closely and be ready to revise our strategies if not implemented as proposed.
There were several other proposed changes to the superannuation system made in the Federal Budget, these included:
Other Contribution Changes
The concessional contribution limit will reduce to $25,000 per annum for individuals from 1 July 2017.
- There will be no need to meet the superannuation "work test" in order to make contributions to superannuation for those between age 65 and 74 from 1 July 2017.
- All individuals will be able to make personal deductible contributions (up to the concessional contribution limit of $25,000 per annum) to superannuation from 1 July 2017, it won’t just be limited those considered "self-employed".
- Contributions made to GESB West State (and other constitutionally protected funds) will count towards the concessional contribution limit ($25,000 per annum) from 1 July 2017.
- Superannuation pensions considered "transition to retirement" pensions, will not attract a tax free status on income and capital gains from 1 July 2017.
- You will be restricted to commencing a pension with no more than $1.6 million from 1 July 2017. Superannuation capital in excess of $1.6 million can remain within superannuation, but will be in "accumulation phase" and be subject to income and capital gains tax. If the pension balance grows in excess of $1.6 million, you are not required to withdraw the excess amount out of the pension, it is just the pension starting amount that is tested against the $1.6 million.
We will be working hard over the coming months to ensure all our clients' strategies are responsive to the proposed changes.