Industry breathes a sigh of relief
Policy settings are now in place that will probably result in most people less than 40 ending up with adequate retirement savings. That's because both sides of politics say they will increase the super guarantee to 12 per cent from 9.25 per cent now.
Under the government's plan, the 12 per cent will be reached by July 1, 2019. That is why those less than 40 will benefit - they will have at least 15 years of a 12 per cent super guarantee.
Under a Coalition government, the super guarantee will rise more slowly and will not hit 12 per cent until 2021. That is more than two parliamentary terms away and gives plenty of time for business lobby groups to persuade a Coalition government not to implement the full increase.
The government's plans to slow the growth of superannuation tax concessions are good, even if they do not go far enough. Those earning more than $300,000 a year will pay a contributions tax of 30 per cent instead of 15 per cent.
From July 1 next year, under the government plan, retirees will be taxed 15 per cent on annual earnings in their super above $100,000, compared with no tax at present. The government says this should only affect those with retirement savings of $2 million or more.
To help low-paid workers save for retirement, the government offers a tax cut of up to $500 a year to those earning up to $37,000. This, in effect, removes the 15 per cent contributions tax for low-income earners. The Coalition has said it will remove this benefit, if elected.
Those who don't have long to go before retirement can take advantage of the increased limit for salary sacrifice into super - $35,000 this financial year for those aged 60 and over at the start of 2012-13.
For everyone else, the cap is $25,000. From July 1 next year, the $35,000 limit will apply to those aged 50 and over. The Coalition supports the higher caps.
Frequently Asked Questions about this Article…
The industry is relieved because the government — following the Coalition’s earlier pledge — has committed to hitting the pause button on further superannuation changes, easing policy uncertainty and giving funds and advisers a break from ongoing reform fatigue.
Both major parties say the superannuation guarantee will rise to 12 per cent (from 9.25 per cent now). Under the government’s plan the 12 per cent rate is scheduled to be reached by July 1, 2019, which particularly helps people under 40 who will have many years to benefit from the higher rate.
The government plans to reach a 12% super guarantee by July 1, 2019, while the Coalition’s proposal would lift the rate more slowly, not reaching 12% until 2021 — a delay that could give time for business lobby groups to try to influence the final outcome.
The government plans to slow the growth of super tax concessions: people earning more than $300,000 a year would pay a 30% contributions tax instead of 15%, and from July 1 next year retirees will face a 15% tax on annual earnings in their super above $100,000 (the government says this should mainly affect those with retirement savings of $2 million or more).
Yes. To help low-paid workers save, the government offers a tax cut of up to $500 a year for those earning up to $37,000, effectively removing the 15% contributions tax for those low-income earners. The Coalition has said it would remove this benefit if elected.
For the current financial year the article notes a $35,000 cap for people aged 60 and over at the start of 2012–13, while the general cap is $25,000. From July 1 next year the $35,000 limit will apply to those aged 50 and over, and the Coalition supports keeping higher caps.
Under the government plan, from July 1 next year retirees will be taxed 15% on annual earnings in their super above $100,000. The government expects this measure to mainly affect people with very large retirement balances — roughly $2 million or more.
Everyday investors should be aware of the scheduled rise in the super guarantee to 12% and how timing differs by party, check whether they qualify for the low-income $500 tax benefit, and consider how the salary sacrifice caps and higher taxes on very large balances might affect retirement planning. If unsure, speaking with a trusted financial adviser can help apply these changes to your personal situation.
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