To work out how the latest super changes will affect me.
The government announced a number of changes as part of last week's mini budget. Some were about cutting costs while others were aimed at improving changes already in the pipeline. One of the bigger cuts involves a reduction in the super co-contribution from July 1 next year. The government will reduce its matching from $1 per $1 invested to 50?, reducing the maximum co-contribution from $1000 to $500. Because the benefit is phased out on incomes of more than $31,920, the income threshold at which you can receive a partial co-contribution will come down from $61,920 this year to $46,920. That means this is the last chance many middle-income earners will have to claim their super booster.
Doesn't the government want us to save more for retirement?
Part of the rationale for the cut is the introduction of the new low-income super contribution next year. People earning up to $37,000 will automatically receive a refund of the 15 per cent contributions tax on their super, up to a maximum $500. This will address a significant inequity in the system where lower earners pay the same tax on their super as their income. Under the proposed rebate, the money will be paid automatically into their super fund without the need to fill out forms or lodge a tax return. The government says this will benefit three times as many lower earners as the co-contribution, as you don't have to make extra savings to get the benefit. Lower earners will still be able to claim the reduced co-contribution if they do make voluntary savings but middle-income earners will miss out. The government also announced in the mini budget that it would pay the low-income super contribution only to people earning 10 per cent or more of their income from employment or carrying on a business and will pay only benefits worth $20 or more. All workers will also benefit from measures to increase compulsory super contributions from 9 per cent to 12 per cent.
What else is changing?
The other nasty is freezing the concessional super contributions cap for the 2013-14 year. This means the cap won't increase from $25,000 to $30,000 until July 1, 2014, restricting the ability of those playing catch-up to add to their retirement savings. The government says the freeze will also flow on to other caps, such as the $150,000 cap on non-concessional contributions and the $50,000 cap for those aged 50 or over, as both are calculated as multiples of the concessional cap. The Self-Managed Super Fund Professionals' Association of Australia chief executive, Andrea Slattery, says deferring indexation even for one year is likely to result in more people being penalised for inadvertent cap breaches. But, she says, it is encouraging that the government has said it will work with industry on the proposed new $50,000 annual concessional cap for those over 50 with a balance of $500,000 or less in superannuation, due to take effect next year. On the plus side, retirees have been given some relief with the current reduction in minimum pension drawdowns being extended for an extra year until July 1, 2013. The 25 per cent reduction in the minimum drawdown that applies at present will continue for another year so retirees are not forced to sell investments at a loss to pay their pension (see page 9). The government has also abolished the maximum age for compulsory super, so workers over 75 can still receive contributions from their employer. Other measures announced in the package include deferring the proposed 50 per cent tax break on interest income and the standard tax deduction for work-related expenses for a year. These are both now due to come into effect from July 1, 2013.