Government makes small superannuation tweaks while waiting on the Financial Systems InquiryDOWNLOAD
Tuesday 13 May 2014: Deloitte National Superannuation Leader Russell Mason said that the announcements made by the Treasurer in his 2014 Federal Government’s Budget were small initial steps while waiting the recommendations from this year’s Murray Financial Systems Inquiry.
He said an unexpected change the Government slipped in was deferring the superannuation guarantee by an extra year from 1 July 2021 to 2022. The Coalition Government was originally going to pause the Superannuation Guarantee at 9.25% for two years and then scale it to reach 12% in 2021. However on Tuesday evening the Treasurer announced that the SG will now go to 9.5% next year (1 July 2014) and freeze it until 30 June 2018. The SG charge will then increase by 0. 5% each year until it reaches 12% in 1 July 2022 – a year later than originally proposed.
“Although this does of course mean that it will take longer for people to build up their super – especially when you consider that the previous Labor government had flagged 2019 as the 12% SG date – the long term impact on superannuation savings individually will be minimal,” Mason said.
Superannuation partner John Randall said: “The Government also announced a sensible change on the tax rate payable on excess contributions,” he said. “It is currently at 46.5% (47% from 1 July 2014). Now, backdated to 1 July 2013, individuals will have the option to withdraw any excess contributions made from 1 July 2013 together with related earnings, and pay tax at their marginal rate on the earnings.”
He added: “The annual non-concessional contribution cap is currently $150,000 (rising to $180,000 from 2014-15). Also the bring-forward rule will currently allow a one-off non-concessional contribution of up to $450,000 over three years or $540,000 over three years from 2014-15.”
He said that if you were looking for an increase in the pension payment, you will be disappointed as any rises will now be pegged to inflation and the pension means test threshold will be frozen for three years. In three years’ time, the income and threshold test will change significantly. For the purposes of the pension income test, the government will change how it deems the return from a pensioner’s financial assets, from September 2017.
There will be a tougher income test for self-funded retirees to receive the Commonwealth Seniors Health Card; the Government will reset the deeming thresholds from $46,600 to $30,000 for singles, and from $77,400 to $50,000 for couples.
Aligning with the income test for pension eligibility, an individual’s superannuation pension will be included in the incomes test for the health card. But the government will not include the family home in the means test.
Mason pointed out that: “By increasing the age pension age to reach 70 by 1 July, 2035, there is the danger that people will draw down more super than they would have if the pension age stayed at 67 as legislated by the previous Labor Government.”
Mason said: “Despite these changes Australia still need to better address adequacy in retirement. Unless people work longer their superannuation accumulation will be inadequate.”
In the Dynamics of Superannuation report, Deloitte research shows that even in 20 years’ time, 75% of retirees will still receive all or part of the age pension under current eligibility.
Deloitte’s Federal Budget 2014 website
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