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 announced that two of the five superannuation policies released in April would be separated and introduced to Parliament before the next sitting session ended. It was surprising because those measures had been expected to be bundled and not voted on before the election, especially given there were only 19 sitting days in the budget session.
The article describes several negative changes: higher 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.
Two positive reforms are an increase in concessional (before-tax) contribution limits for older Australians—from $25,000 to $35,000 on a phased basis—and reform of the excess super contributions penalty so excess amounts are returned and taxed at the member’s marginal rate plus an interest charge instead of facing extremely punitive penalty tax.
The higher $35,000 concessional limit is phased in: anyone aged 60 and over at July 1, 2013 will have the $35,000 limit for the 2014 financial year, and those aged 50 and over at July 1, 2014 will have the $35,000 limit for the 2015 financial year.
Under the new policy, excess super contributions will be paid back to the member. The member will then pay tax on the excess at their applicable marginal tax rate plus an interest charge. This replaces the previous system that could effectively see a person lose up to about 93% of an excess contribution through penalty tax.
Retirees could be affected in different ways: some older workers will be able to boost super balances with higher contribution caps, but retirees who draw more than $100,000 in pension-account income may face higher income tax on that income. Tighter Centrelink rules could also change pension entitlements for some people.
The article states that one of the 'bad' changes is an increase in capital gains tax for super funds. While the article doesn’t quantify the impact, higher capital gains tax for funds could influence net returns on investments held within superannuation, which everyday investors should monitor.
The shadow minister for superannuation, Mathias Cormann, and the Greens were contacted for comment but did not respond. Because two measures are being separated and introduced to Parliament before the election, the opposition will face pressure to respond and vote on the reforms during the remaining sittings.
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