Shorten separates the good from the bad in super reforms
Last week Bill Shorten, the Minister for Superannuation, made a surprise announcement about two of the five superannuation policies released in April.
The announcement was a surprise because two of the policies will be introduced to Parliament before the next session rises. Previously it had been thought they would be introduced as a package and not be put to a vote before the election.
For the five policies to have gone through the drafting process, the legislation going through a consultation process, and then introduced into Parliament for a vote before the election seemed remote. This task was made all the more difficult with there being only 19 sitting days in the budget session.
The policies were very much a mixture of good and bad news for superannuation. The bad news included an increase in income tax for super members in pension phase who earned more than $100,000 in income on the pension account, an increase in capital gains tax for super funds, and the tightening of Centrelink rules for superannuation pensions. By Shorten separating these policies from those that improve the superannuation system will prove challenging for the opposition.
The first of the policies to improve super was an increase in super contributions limits for older Australians. At present there is a flat maximum contribution limit of $25,000 for everyone. Having one rate applying to everyone ignores the fact that it is not until people are in the latter stages of their working life, when children have left the nest and the mortgage is paid off, that they have the ability to maximise their superannuation contributions.
The new policy will increase the concessional contribution limit from $25,000 to $35,000 for older Australians in two stages. Anyone 60 and over at July 1, 2013, will have a contribution limit of up to $35,000 for the 2014 financial year. Those who are 50 and over at July 1, 2014, will have the $35,000 contribution limit for the 2015 financial year.
The second, long-overdue improvement will remove one of the most punitive tax regimes on Australians. This is the excess super contributions penalty tax system that can result in a person losing 93 per cent of an excess super contribution as penalty tax.
This move is a personal triumph for Shorten who, for many years, has wanted to reform this tax.
Until now, the best he steered through caucus was the present system under which a person escapes the excess contributions tax on a once-only excess contribution of up to $10,000.
Under the new policy the excess contribution will be paid back to the superannuation member who will pay tax on the excess at their applicable marginal tax rate plus an interest charge.
The shadow minister for superannuation, Mathias Cormann, and the Greens were contacted for comment on what their attitude to these two measures would be. Unfortunately neither Cormann nor the Greens chose to comment.
It can be only hoped that they will put politics aside and vote for these much-needed superannuation reforms.
Frequently Asked Questions about this Article…
Bill Shorten surprised many by saying two of the five superannuation policies released in April will be introduced to Parliament before the next session rises. That was unexpected because the measures had been expected to be introduced as a package and not put to a vote before the election.
The article highlights two clear improvements: an increase in concessional contribution limits for older Australians (from $25,000 to $35,000 in a staged roll‑out) and the removal of the very punitive excess super contributions penalty tax so excess amounts are returned and taxed at the member’s marginal rate plus an interest charge.
The concessional contribution cap would rise from $25,000 to $35,000 in two stages: people aged 60 and over at 1 July 2013 would have the $35,000 limit for the 2014 financial year, and those aged 50 and over at 1 July 2014 would have the $35,000 limit for the 2015 financial year.
Under the new policy the excess contribution would be paid back to the superannuation member, and the member would pay tax on that excess at their applicable marginal tax rate plus an interest charge. This replaces the previous regime that could see people lose up to 93% of an excess contribution to penalty tax.
The article lists several measures viewed as bad news: an increase in income tax for super members in pension phase who earn more than $100,000 in pension‑account income, an increase in capital gains tax for super funds, and a tightening of Centrelink rules for superannuation pensions.
The article says members in pension phase who earn more than $100,000 in income on their pension account would face an increase in income tax on that pension‑account income, meaning higher tax bills for higher‑income retirees if the measure is passed.
The piece notes that separating the ‘good’ reforms from the ‘bad’ ones will make it hard for the opposition and could complicate voting. It also mentions there were only 19 sitting days in the budget session, the policies had been drafted and consulted on, and that the shadow minister Mathias Cormann and the Greens were contacted but did not comment.
Everyday investors should monitor which measures are put to a parliamentary vote and the timing of any changes—especially if you’re an older saver (impacted by contribution caps), someone who could face excess contribution issues, or a retiree with pension‑phase income—because the final rules will determine tax and Centrelink outcomes.
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