Playing politics with retirement savings
In the May federal budget, the government confirmed the super guarantee would gradually rise to 12 per cent. The first instalment - the rise to 9.25 per cent from 9 per cent - has been delivered for the current financial year. Under Labor's plan, the super guarantee will reach 12 per cent by 2019. If the Coalition is elected on September 7, it will also increase the guarantee to 12 per cent. But there has to be a question mark over whether an Abbott government would deliver the 12 per cent. Under the Coalition's plan, it does not reach 12 per cent until 2021 - more than two parliamentary terms away. That is plenty of time for the business lobbies to persuade a Coalition government not to honour the 12 per cent promise. Of course, getting to 12 per cent under a Labor government, though more likely, is also not assured.
The Coalition says it will retain Labor's changes to the cap or limits on how much can be salary sacrificed to super. Anyone aged 60 or more on July 1 this year has a cap of $35,000 instead of $25,000 for everybody else. The higher cap will be extended to anyone aged 50 and over as at July 1, 2014.
A big difference between the two is with the low-income superannuation contribution. The payment is worth up to $500 a year to those earning up to $37,000. It effectively gives the lower paid the same tax breaks on their 9 per cent super as enjoyed by the better paid. The Coalition says it will end the payments if it wins government because the revenues from the mining tax - a tax the Coalition says it will rescind - is supposed to help fund the payments.
Both sides of politics have said that, if elected, they will not introduce any new retirement savings policies. The Coalition says it will make no "detrimental" changes for the life of the Parliament. The government says it will have a moratorium on any further changes for five years. Presumably, that excludes the policies already announced but not yet legislated.
The most important of these includes making retirees pay a 15 per cent tax on earnings in excess of $100,000 a year where there is no earnings tax now. The government also intends applying the "deeming" rates that apply to investment income from outside super to the income earned within super. The result, should it go ahead, is that many of those drawing an income stream will be reporting a higher deemed income to Centrelink and their age pension could be reduced.
Frequently Asked Questions about this Article…
The super guarantee (SG) is the compulsory employer contribution to superannuation. The government has begun increasing it—from 9% to 9.25% for the current financial year—and both major parties have said it should eventually reach 12%. Labor aims to reach 12% by 2019, while the Coalition’s plan reaches 12% by 2021, so timing depends on which party implements the policy.
Yes. The government has changed caps on how much can be salary sacrificed into super. People aged 60 or more on July 1 this year have a higher concessional cap of $35,000 (instead of $25,000 for others), and that higher cap will be extended to anyone aged 50 and over as at July 1, 2014, according to the announced changes.
The low‑income superannuation contribution is a payment worth up to $500 a year for people earning up to $37,000. It effectively gives lower‑paid workers similar tax advantages on their 9% super contributions as higher‑paid workers receive.
The Coalition has said it would end the low‑income superannuation contributions if elected, because those payments are intended to be funded from mining tax revenues that the Coalition plans to rescind.
Both sides have said they will not introduce new retirement savings policies if elected. The Coalition promises no 'detrimental' changes for the life of the Parliament, while the government proposes a five‑year moratorium on further changes—though that likely excludes policies already announced but not yet legislated.
The government has announced proposals that would tax earnings inside super: a 15% tax on super earnings above $100,000 a year and application of deeming rates to income earned within super. If enacted, these changes would mean some retirees pay tax on earnings that are currently tax‑free.
If deeming rates are applied to income earned inside super, many people drawing an income stream could be assessed as having a higher deemed income for Centrelink means‑testing. That higher deemed income could reduce age pension entitlements.
Some changes have already taken effect (for example the SG increase to 9.25%). Other measures are announced but not legislated, so outcomes depend on which party wins and what laws pass. Everyday investors should follow the progress of announced measures—like the move toward 12% SG, salary sacrifice caps, low‑income contributions and proposed tax rules for retirees—to see which become law.
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