In the middle of each financial year the Federal Government reports on how well it’s travelling financially and how the economy is going.
The technical name for this report is the Mid-Year Economic and Fiscal Outlook, but political nerds call it “MYEFO”. Last week the Government issued its MYEFO and in an unusual move announced quite a few policy changes, including six that directly impact super. Let’s take a look at what’s changed.
Concessional contribution caps
The government will freeze concessional contribution caps until 2014/15. Normally these caps are indexed each year by movements in ‘Average Weekly Ordinary Time Earnings’, but the impact of this indexation is held over until it reaches at least $5,000. The current $25,000 cap was expected to rise to $30,000 on 1 July 2013, but will now be delayed until 1 July 2014 at the earliest.
If you were in any doubt that the Government is desperate for revenue, this has cleared matters up beautifully because this is expected to save it $485 million over two years. The super industry has been pushing for the $25,000 cap to be increased to $50,000. They have absolutely no chance of getting that out of the Gillard Government.
Account-based pension concession
The account-based pension income concession has been extended for the 2012/13 financial year. This concession was introduced during the GFC so pensioners whose super had suffered substantial losses could choose to make smaller compulsory pension payments to preserve their savings.
At present, an ABP in the pension phase must pay a minimum income that is 75% of the normal statutory minimum. For example, the 4% minimum that applies to pensions paid to those under 65 is reduced to 3%. This is a good move on the Government’s part to announce this concession now given the state of financial markets.
At present, the Government matches dollar-for-dollar non-concessional contributions up to the value of $1,000, although the co-contribution amount differs based on your salary. From 1 July 2012, the co-contribution will be reduced to $500 and the Government will only match 50 cents in the dollar.
In the final years of the Howard Government, the Government paid $1.50 for every $1 of personal contributions made, with a maximum co-contribution of $1,500 per annum.
This policy is slowly, but surely, being knee-capped by the ALP Government.
Super Guarantee age limit
The Government has scrapped the age limit on the Super Guarantee – that is, compulsory employer-paid super contributions. At present, employers don’t have to make compulsory super contributions for anyone aged 70 or above.
This restriction will be removed from 1 July 2013. The move has been broadly welcomed as removing age discrimination in an aging workforce. But it is hoped the regulation won’t cause unwanted side effects.
Older workers often say they find it hard to find employment and it is reasonable to expect that some employers must have found not paying super contributions a small incentive to employ someone over 70.
Excess contributions and trust deed amendments
Some clever super lawyers were using rarely applied trust law provisions to circumvent tax on excess contributions. However, in March 2010, the Australian Tax Office said this strategy didn’t work. The Government said it will amend the law so these provisions can’t be used, although a commencement date hasn’t been announced.
Refund of contributions tax for low-income earners
Up to $500 worth of contributions tax will be returned to you if you have an annual income (taxable income, reportable fringe benefits, net investment income including losses and reportable super contributions) of less than $37,000. This will apply for employer contributions made from 1 July 2012 onwards and, under the current legislation, will be paid after you’ve submitted your tax return. The Government will change this rule for people who don’t need to submit a tax return so they can also access this new concession.
In the majority of cases, the MYEFO changes are designed to save the Government money – that is with the exception of the massive increases in politicians’ salaries recently announced. Hopefully, some of the measures will not end up penalising the people they’re actually meant to help.
Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.