Super windfall from Henry review

The Federal Government has released its initial response to the Henry Review of Australia’s future tax system. In relation to superannuation, four significant proposals emerged:

1. Increase in Super Guarantee from 9% to 12%
2. Increase in Super Guarantee age from 70 to 75
3. Government savings incentives for low-income earners
4. Higher concessional contribution caps for targeted groups

In general, UniSuper believes the proposals are good news for the superannuation industry. While some will require relatively small changes to how we administer members’ retirement savings, all are designed to increase the wealth of Australians in retirement.

Importantly, none of the proposals will have immediate effect. The earliest effective date is 1 July 2012.

1. Increase in Super Guarantee from 9% to 12%

The Superannuation Guarantee (SG) rate will increase from 9 per cent to 12 per cent by small annual increments from 1 July 2013 to 1 July 2019.

2. Increase in Super Guarantee age from 70 to 75

The Superannuation Guarantee age limit will rise from 70 to 75 from 1 July 2013. This will match the age limit for voluntary and self-employed contributions.

3. Government savings incentives for low-income earners

Currently, as a result of the flat tax rate for all superannuation concessional contributions, low-income earners receive little or no tax advantage.

The Government will provide a superannuation contribution of up to $500 annually for individuals with an adjusted taxable income of up to $37,000. This will be calculated by applying a 15 per cent matching rate to the concessional contributions made by or for individuals on adjusted taxable incomes of up to $37,000, with an annual maximum amount payable of $500 (not indexed).

The amount will be paid into the member’s super account directly. Concessional contributions made from 2012–13 will be eligible for the Government contribution. This will be paid in 2013–14.

4. Higher concessional caps for targeted groups

This proposal is designed to target super concessions to those with the greatest need to build their retirement savings. For example, those with lower superannuation savings, such as women with broken work patterns, will be able to make additional ‘catch-up’ contributions close to retirement.

Currently, transitional arrangements double the concessional contributions cap of $25,000 (to $50,000) for those aged 50 or over. This transitional arrangement will expire on 30 June 2012.

From 1 July 2012, a separate higher concessional contributions cap of $50,000 (indexed) will be in place for those aged 50 or over who have total superannuation balances of less than $500,000.
 

UniSuper’s Defined Benefit Division

While it is likely that there will need to be some alterations to the administration systems and processes of the Fund, there will not be any need for substantial changes to the structure or formula of UniSuper’s DBD.