Super slug better deal for battlers

MIDDLE-INCOME earners putting aside voluntary super will pay the price for tax concessions for lower earners as part of the government's cost savings.

By InvestSMART · 30 Nov 2011

By InvestSMART ·
30 Nov 2011

Comments

MIDDLE-INCOME earners putting aside voluntary super will pay the price for tax concessions for lower earners as part of the government's cost savings.

From July 1 the government will slash the popular super co-contribution from $1 to 50?, reducing the maximum benefit from $1000 to $500.

The measure also means those earning more than $46,920 will no longer get a partial benefit compared with an upper income threshold of $61,920 this year.

Savings will also be made by freezing the super contribution caps until 2013 and deferring the introduction of the proposed tax break on interest savings and the standard tax deduction for work-related expenses.

Assistant Treasurer Bill Shorten said the co-contribution was being cut because the new low income super contribution would benefit more than three times as many people.

He said 3.6 million low-income earners were expected to receive the benefit which refunds the 15 per cent contributions tax for those earning less than $37,000.

It will also be streamlined so that the refund is paid automatically to members' super accounts without them needing to lodge tax returns.

But in a new measure, lower earners who receive less than 10 per cent of their income through employment or business will not be eligible.

This is the second time the government has cut the co-contribution, having already reduced the rate at which it matches employee's voluntary contributions from $1.50 to $1 in 2009.

While disappointed with the latest cut, Australian Institute of Superannuation Trustees chief executive Fiona Reynolds said the changes had to be targeted to those who needed it most.

"It has been clear for some time that low-income earners who currently do not receive any tax benefits from compulsory super contributions deserve a better deal," she said.

Association of Superannuation Funds of Australia chief executive Pauline Vamos said the cut made it more critical that compulsory super contributions be lifted from 9 to 12 per cent.

Retirees were granted a reprieve, with the government extending the current relief for minimum pension payments until July 1, 2013 because of continuing volatile investment markets.

The relief reduces the minimum amount retirees must take from their pensions by 25 per cent.

Go to Google News, then click "Follow" button to add us.

Share this article and show your support

Frequently Asked Questions about this Article…

What is changing to the super co-contribution from July 1?

From July 1 the government is cutting the popular super co-contribution by about half, reducing the maximum co-contribution payment from $1,000 to $500. This reduces the matching benefit for people who make voluntary super contributions.

Who benefits from the new low income super contribution and how does it work?

The new low income super contribution refunds the 15% contributions tax for people earning less than $37,000. The measure is expected to help about 3.6 million low-income earners and will be streamlined so the refund is paid automatically into members' super accounts without them having to lodge tax returns.

Which earners will lose partial co-contribution benefits under the changes?

Under the new measures, people earning more than $46,920 will no longer receive a partial co-contribution benefit. This replaces the higher upper income threshold of $61,920 that applied in the current year.

Are there new eligibility limits for the low income super contribution?

Yes. While the low income super contribution targets those on modest incomes, lower earners who receive less than 10% of their income through employment or business will not be eligible for the refund.

What other superannuation tax and contribution cap changes did the government announce?

The government will freeze super contribution caps until 2013 and defer the proposed tax break on interest savings and the standard tax deduction for work-related expenses as part of its cost-saving measures.

How did industry groups respond to the co-contribution cuts?

Industry groups welcomed targeting help to those most in need but warned of consequences: Fiona Reynolds of the Australian Institute of Superannuation Trustees said low-income earners deserve a better deal, while Pauline Vamos of the Association of Superannuation Funds of Australia said the cut makes it more critical to lift compulsory super contributions from 9% to 12%.

What relief was given to retirees amid these super changes?

Retirees received a short-term reprieve: the government extended existing relief for minimum pension payments until July 1, 2013, allowing retirees to reduce the minimum amount they must withdraw from pensions by 25% because of volatile investment markets.

What should everyday investors be aware of after these superannuation changes?

Everyday investors should note that voluntary contributions now attract a smaller co-contribution, contribution caps are frozen until 2013, and eligibility rules for the new low income refund exclude those with very limited employment income. These changes may affect retirement saving strategies and the relative benefit of voluntary top-ups for middle-income earners.