The Rudd Government’s Superannuation Changes (and Henry’s review)

The Government hopes to deliver a boost to retirement savings to help prepare for an ageing population and ensure the Australian people get a fairer share of our mineral wealth.

The reforms expect to deliver substantial improvements in retirement savings and a fairer distribution of superannuation tax concessions, ensuring more Australians can enjoy a comfortable retirement.

Superannuation Guarantee

The superannuation guarantee rate will increase from 9% to 12%, commencing with a 0.25 increase in 2013-14 and 2014-15, followed by 0.5 increments until the SG reaches 12% by 2019-20.

The Henry Report made no specific recommendation about the superannuation guarantee rate. The only recommendations relating specifically to the SG are that:

• superannuation guarantee contributions should be paid at the same time as wages; and
• employers should report superannuation contributions to their employees when a contribution is made.

Superannuation Guarantee: age limit raised to 75

The Superannuation Guarantee age limit will be raised from 70 to 75, with effect from 1 July 2013.

Currently, the SG only applies to people aged to 70. However, employers can make deducible super contributions for employees aged under 75, while self-employed people can make deductible contributions until they turn 75.

The Henry Report recommended that the restriction on people aged 75 and over from making contributions should be removed and that a work test should still apply for people aged 65 and over.

Concessional contributions caps for over 50s to continue

From 1 July 2012, the Government will allow individuals aged 50 and over with total superannuation balances below $500,000 to make up to $50,000 in concessional superannuation contributions.

The current $50,000 superannuation concessional contributions cap for individuals aged 50 or over is a transitional cap scheduled to expire from 1 July 2012. Under the Government's measure, the $50,000 cap will be extended permanently for individuals aged 50 or over with total superannuation balances of less than $500,000.

Eligible individuals under the age of 75 will still be able to make non-concessional contributions to superannuation up to $150,000 per year.

Those who are under 65 can contribute up to $450,000 of non-concessional contributions in any 3 year period.

The Henry Report stated that an annual cap on contributions should continue: There is no specific mention of a concession for people aged 50 or over making superannuation contributions. Rather, it recommends that tax on super contributions be abolished and taxed in the hands of the individual, with a flat-rate refundable tax offset being available to ensure that the majority of taxpayers do not pay more than 15% on contributions.

Superannuation Contributions for low-income earners

From 1 July 2012, the Government will provide a contribution of up to $500 annually for workers with adjusted taxable incomes up to $37,000. This ensures that no tax will be paid on super guarantee contributions for those with incomes up to that amount in 2012-13.

The amount payable under this measure will be calculated by applying a 15% matching rate to the concessional contributions made by or for individuals on adjusted taxable incomes of up to $37,000, with an annual maximum amount payable of $500 (not indexed). The amount will be paid into the individual's super fund.

Concessional superannuation contributions made from 1 July 2012 will be eligible, with the first Government contribution paid in 2013-14.

The Henry Report made no specific recommendation about superannuation concessions for low-income earners.

The report recommended that:

• tax on superannuation contributions should be abolished;
• employer contributions should be treated as income in the hands of the individual and taxed at marginal rates;
• a flat-rate refundable tax offset should be available.

It recommends that this offset should:

• be provided for all contributions up to an annual indexed cap of $25,000;
• be set so that the majority of taxpayers do not pay more than 15% on their contributions;
• be doubled for people aged 50 or older;
• replace the super co-contribution and spouse contribution tax offset.

These superannuation measures will cost around $2.4 billion over the next four years. The Government will consult with industry on the implementation of these measures.

 The information in this newsletter is quite general in nature and anyone intending to apply it practically to their own circumstances should seek professional advice to verify it’s individual applicability. 

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