In conjunction with the Budget announcements, the Government confirmed some of the changes to superannuation that had been previously stated. There were no real surprises and the usual tinkering with superannuation was minimised.
We have summarised the changes below. The coalition has yet to announce whether it will support all of the changes if elected later this year. So again, watch this space.
Increase in Superannuation Guarantee Contributions
The increase to compulsory superannuation payments for workers has finally arrived. From 1 July 2013, the superannuation guarantee contribution minimum percentage becomes 9.25% – an increase of 0.25% from its current level of 9%.
The rate of SGC will continue to increase over the next 7 years to reach its desired level of 12% in 2019/2020.
Employers: you should take note and ensure that you adjust your payroll systems and account for this change.
Higher Concessional Contribution Cap
The concessional contributions cap for current financial year (2012/2013) is $25,000. From 1 July 2013, the arrangements for the concessional contribution limit will be:
- From 1 July 2013, the concessional contribution cap will increase to $35,000 for all people aged 60 and over;
- From 1 July 2014, the concessional contribution cap will increase to $35,000 for all people 50 and over;
- From 1 July 2018, the concessional contribution cap is expected to increase to $35,000 for all people regardless of age.
Excess Contribution Refunds
Individuals will be allowed to withdraw all excess superannuation contributions received by their fund from 1 July 2013. In addition, excess concessional contributions will be taxed at the individual’s marginal tax rate plus an interest charge, not automatically at the highest marginal tax rate.
This proposed change is designed to ensure that excess concessional contributions are taxed in the same way as any non-concessional contributions made by the member.
Note however that a member who pays tax at the highest marginal rate may pay a higher total tax rate on excess contributions under this proposal due to the additional interest charge.
Tax on Pension Earnings Over $100,000
From 1 July 2014, investment earnings of more than $100,000 a year on superannuation pensions and annuities will no longer be tax free, but will instead attract tax at a rate of 15%. The first $100,000 in earnings per individual per year will continue to be tax free. Special arrangements will also apply for capital gains on assets purchased before 1 July 2014.
The Government has confirmed that these measures will also apply to pension benefits being paid from defined benefit funds. The previous announcement stated this would be achieved by actuarial calculations of the notional earnings each year for defined benefit members in receipt of a concessionally-taxed superannuation pension. No further detail on implementation has been given in the Budget papers. This proposal is yet to be legislated.
Account Based Pensions to be Deemed
From 1 July 2015, new account based pensions commenced will no longer be able to take advantage of the deductible amount for social security purposes, thus the entire pension amount will be deemed as a financial asset.
All superannuation pensions held before 1 January 2015 will be grandfathered indefinitely and will continue to be assessed under the existing rules for the life of the product – no current pensioner will be affected unless they choose to change products.