PORTFOLIO POINT: Changes to super in next week's Federal Budget, plus recent aged care reforms, will have important implications for retirees.
The Federal Budget is still the better part of a week away, but already there are several significant leaked measures expected to affect retirees and seniors. In addition, last month saw the release of a comprehensive overhaul of aged care, with a string of measures to be introduced progressively from July 1. While much greater detail will be revealed on May 8, there is plenty of available information about what is likely to happen and what it will mean for you in the meantime.
The most substantial changes so far are in aged care. Self-funded retirees face changes to means testing and accommodation payments designed to keep more people in their homes for care.
Key elements of the federal government’s Living Longer Living Better plan, announced on April 20, include raising the number of home care packages from 60,000 to 100,000 and capping care costs at $25,000 a year, and $60,000 for life.
Importantly, care fees that were previously income-tested will now be asset-tested as well.
The plan also removes the distinction between low-care and high-care providers, which means that everyone with more than $40,500 of assets will need to pay an 'accommodation payment’ (a bond) from July 2014, through either periodic payments or a lump sum, when moving into aged care. The really big change here is that the federal government will now approve those bond payments, currently set by providers, through the creation of the Aged Care Financing Authority to “ensure that these changes truly reflect the value of the accommodation services offered.”
Grant Thornton’s aged care division released a report this week critical of aspects of the reforms and outlining several potential problems, including the government’s role in approving accommodation payments.
“It is inappropriate and impractical to increase regulation over consumer payments for accommodation,” the report said. Grant Thornton said the Productivity Commission had looked into this but did not recommend regulation in the 2011 Caring For Older Australians report, because the value of accommodation and services couldn’t be reliably measured and it will be virtually impossible for the ACFA to police.
This aspect of the regulation is designed to stop the charging of 'super bonds’. However, financial planners point out this will destroy the 'bonus bond’ strategy, where retirees can tie up extra money in bonds in return for extra care or reduced fees – money that is not counted towards the aged pension means test.
Aged Care Financial Services Australia planner Graeme Dunn said the implications of this were a serious concern, adding that he was aware of $20 million of investment being put on hold because of the proposed laws.
“The government’s [saying these reforms] will create more places, but it’s doing just the opposite,” he said.
Mr Dunn also said there was the potential of increases in attempted asset minimisation because of the changes, and retirees needed to be mindful of gifting laws that can look up to five years back.
Then there is the leaked information regarding changes to superannuation contribution penalties and tax levels that could take effect as early as next week.
As part of the push for budget savings targeting high-income earners, the tax rate for concessional contributions to superannuation is expected to rise from 15% to 30% for individuals on an annual income of more than $300,000.
This would cost individuals on a $300,000 income an extra $7500 if they contribute the maximum $50,000.
This coincides with a change in contribution limits this year, where from July 1 the limit drops from $50,000 to $25,000 for the vast majority of Australians. Those who are over 50 with a super balance of less than $500,000 will still be able to contribute up to $50,000, and as Bruce Brammall wrote a fortnight ago, it may well be worth a little pain and sacrifice to contribute more prior to June 30, knowing contribution limits tighten up after that.
Reports also suggest the fine for exceeding these annual limits is set to rise.
SMSF Academy head Aaron Dunn writes that the contribution tax changes could capture more people than anticipated through the inclusion of tax-free benefit payments (pension and lump sums) for those over 60, and that it was highly likely the sector most impacted by additional tax would be self-managed super funds.
Contributions at the other end of the income scale are also being adjusted, with the Low Income Superannuation Contribution coming into effect on July 1 as well. LISC means that those earning up to $37,000 a year will, in effect, be taxed nothing on their contributions.
And one last thing to mention for self-funded retirees this month – the government is giving away free money. Advance payments of $250 for individuals, or $380 for couples, from the Clean Energy Fund to help the 281,100 eligible self-funded retirees with the impact of the carbon tax on July 1 are scheduled to be paid straight into bank accounts in late June.
However, Families and Community Services Minister Jenny Macklin said there were still 9000 eligible retirees who would miss out because their bank details were not registered with Centrelink. Ms Macklin said cash payments will be made directly into bank accounts on June 25 for people who update their details by May 18.
Superannuation editor Bruce Brammall is away on leave this week, returning May 16.