The Budget brought down by the Federal Government last night introduced changes to the superannuation regime dealing with concessional contributions, the government co-contribution, and the minimum payment amounts for account-based pensions. Most of these measures were the subject of strategic leaks over the past week or so, and speculation regarding other more sweeping changes has proved to be unfounded. The Henry Tax Review may of course still result in more substantial changes to the superannuation system.
CONCESSIONAL CONTRIBUTION LIMIT
The concessional contributions cap is to be halved from 1 July 2009.
This limit applies to the amount of concessional contributions (sometimes known as 'before tax contributions') which can be made by or in respect of individuals before excess concessional contributions tax is incurred.
Under the current limits, people under 50 may have up to $50,000 (indexed) in concessional contributions per annum made by or in respect of them, and people aged 50 and over may have up to $100,000 per annum (until the 2011-2012 year). Although it was thought prior to the Budget that this reduction would apply only to 'salary sacrifice' contributions, it seems that the revised limit will apply to both the employed and the self employed.
The new limits are $25,000 (indexed) and $50,000 respectively.
The imposition of excess concessional contributions tax remains unchanged, at a rate of 31.5%. Added to the 15% tax paid by the superannuation fund on the contributions, this brings the total tax applicable to the excess contributions to the top marginal rate.
Non-concessional contribution limits for the 2009-2010 year remained unchanged, at $150,000 per annum (or $450,000 over three years) and will now be calculated as six times the indexed concessional contributions cap.
While the measures of course affect only higher income individuals, the government has indicated that it expects to save around $2.75 billion over four years.
GOVERNMENT CO-CONTRIBUTION
Cut backs have also been announced to the government co-contribution scheme. Under the scheme, people earning less than $60,342 (an amount that is indexed each year to reflect changes in average wages) who make personal superannuation contributions receive a government contribution of $1.50 for every $1 contributed, up to a maximum of $1,500 per year.
The government co-contribution matching rate is to reduce from $1.50 to $1 for each $1 contributed in the years 2009-2010, 2010 -2011 and 2011-2012, with a maximum co-contribution of $1,000. The matching rate will increase to $1.25 for each $1 contributed in 2012-2013 and 2013- 2014, with a maximum co-contribution of $1,250. From the 2014-2015 year, the matching rate will return to $1.50 per $1, with a maximum co-contribution of $1,500.
These measures are expected to save the government around $1.4 billion over the next four years.
EXTENSION OF PENSION MINIMUM PAYMENT RELIEF
The minimum payment requirements applicable to superannuation pensions were halved for the 2008-2009 year, pursuant to new regulations made on 13 March this year.
The Budget extends this relief for the 2009-2010 year. A minimum payment must be made from an account based pension at least annually to ensure that retirees draw down on their superannuation savings over the course of their retirement. Minimum payments are determined by age, varying between 4% and 14% of the pension account balance at 1 July each year.
The government's decision to halve the minimum payment amount is aimed at assisting pension account balances recover from capital losses associated with the global recession. This measure also reduces the need for account-based pension holders to sell assets at a loss in order to meet the minimum payment requirement.
The reduction in the minimum payment amounts applies to account-based, allocated and market-linked (term allocated) pensions.
SMALL AND UNTRACEABLE LOST ACCOUNTS TO BE PAID TO UNCLAIMED MONIES
From 1 July 2010, the government will require superannuation funds to transfer lost accounts which have balances less than $200, or which have been inactive for five years and for which there are insufficient records to identify the owner, to unclaimed monies.
Owners may claim their money from the Australian Taxation Office (ATO) at any time.
OTHER SUPERANNUATION-RELATED MATTERS
The Budget includes the announcement of a paid parental leave scheme from 1 January 2011, which will provide primary carers with up to 18 weeks of leave at the Federal Minimum Wage. The ATO considers that salary paid to individuals while on parental leave constitutes ordinary time earnings for superannuation guarantee purposes. However, the government has announced that it will clarify that superannuation guarantee contributions are not to apply to voluntary paid parental leave payments. This position is to be reviewed when the paid parental leave scheme is reviewed in 2013.
The government has decided not to proceed with the changes it proposed in the 2008-2009 Budget to include gross tax-free superannuation pension income in the adjusted taxable income test for the Commonwealth Seniors Health Card. The government will however proceed with the inclusion of income that is salary sacrificed to superannuation, and this will take effect from 1 July 2009.
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