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Superannuation changes again – what you need to know

Glenn Fairbairn
Director/Private Client Adviser
30 Nov 2011

In an attempt to have the federal budget back into surplus by 2012/13 the Government has announced a number of measures to cut expenditure. As part of this review superannuation has been a major focus and it is likely to be low and middle income earners who will be affected most.

Concessional contribution caps

As part of the mid-year review and outlook, the Government announced that it will delay the indexation of the superannuation concessional contributions caps. This means the annual concessional contribution cap for those under 50 will remain at $25,000 until 30 June 2014 when it is expected to rise to $30,000.

This policy is short sighted and may impact the ability for individuals to adequately save for their retirement. Not only will many individuals be unable to increase contributions to superannuation in line with salary increases, but this policy may lead to an increase in concessional contribution cap breaches. Under this instance contributions in excess of the statutory cap are taxed at 46.5%.

The Government has also announced that they will be removing the maximum age limit so that employers will be required to pay superannuation contributions for workers over 75. On a further positive note, the Government also  intends to undertake further consultation regarding their proposal to allow individuals over 50 to make concessional contributions of up to $50,000 per annum to superannuation beyond 1 July 2012 so long as they have a superannuation balance of less than $500,000. 

As reported in the Hewison Blog on 19 June 2011, our belief is that this proposal will over-complicate the superannuation system and effectively discard the ‘Simpler Super’ motto. Our preference would be an ongoing concessional cap of $35,000 for those over 50, regardless of their superannuation account balance.

Low-income superannuation contributions

Individuals earning up to $37,000 will effectively pay no tax on their superannuation guarantee contributions from 1 July 2012. Under this policy the 15 per cent contributions tax will effectively be refunded into superannuation accounts.

These changes will result in a reduction in the superannuation co-contribution from 1 July 2012, reducing the maximum benefit from $1000 to $500. The measure also means those earning more than $46,920 will no longer get a partial benefit compared with an upper income threshold of $61,920 this year.

But in a new measure, lower income earners who receive less than 10 per cent of their income through employment or business will not be eligible.

Drawdown relief

Although we are strong advocates for a removal of minimum pension requirements altogether, we applaud the Government’s decision to extend drawdown relief for account-based pensions. Under this proposal there will be a 25 per cent reduction in the minimum payment amounts until 2012/13.

Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.