News just in: changes to super

The Commonwealth Government has recently announced a number of important changes affecting superannuation.

The announcements of 29 November 2011 come after the Treasurer’s Mid-Year Economic and Fiscal Outlook and are framed by concerns about international growth prospects and an increased risk of global instability.

While most of these changes are not yet law, these proposals mean that members should review their contributions to superannuation and, if applicable, their pension payments from next year.

Superannuation co-contribution reduced to a maximum of $500

The Government will reduce the maximum amount of the superannuation co-contribution from 1 July 2012. Currently, the Government will match up to $1,000 of personal after-tax contributions made by low to middle income earners. It is proposed, however, that from 1 July 2012 the maximum superannuation co-contribution will be reduced to $500.

The reductions in the superannuation co-contribution may be partly, or fully, offset by the introduction of a new government incentive: the Low Income Superannuation Contribution (LISC).

Low income superannuation contribution

The LISC was announced in last year’s Budget but is not yet law. The LISC is similar to the superannuation co-contribution as it is a government contribution paid into the accounts of eligible members. However, the amount of the contribution is based on concessional contributions (rather than after-tax contributions) and is payable only to those with adjusted taxable incomes of up to $37,000. The annual maximum payment is $500.

The Government’s announcement suggests that the LISC will be of benefit to more low-income earners when compared to the current superannuation co-contribution. Thus, it is possible that over time the LISC will replace the superannuation co-contribution as the Government’s preferred way of assisting those with low incomes to accumulate more in superannuation.

At the time of writing, however, the LISC is not yet law.

In light of these announcements, we encourage members to review their contributions to superannuation. In some instances, members may be able to receive the superannuation co-contribution (albeit reduced) as well as the LISC.

We encourage you to seek financial advice to see whether you may benefit from either of these concessions.

Concessional contribution caps

There was also a surprise announcement about the concessional contributions cap.
The Government will “pause” the indexation of the cap for one year in 2013-14. This is likely to mean that the existing concessional contributions cap of $25,000 will remain at that level until at least 1 July 2014.

This has implications for those members who receive or make concessional contributions at above or close to their cap. The outcome is that those members who were hoping for some relief from excess concessional contributions tax may have to wait another year.

The effect of this tax on our members, particularly those who do not normally pay tax at 46.5%, is an issue that UniSuper feels strongly about. We have already written to the Minister on this policy and will keep you informed of any changes.

There was a related announcement about the concessional contributions cap for those aged 50 and over. Currently, a higher transitional cap of $50,000 applies but is set to expire on 1 July 2012. The Government proposed (in 2010) that a separate higher concessional contributions cap of $50,000 will be introduced to benefit those aged 50 or over who have total superannuation balances of less than $500,000.

This policy is not yet law, but needs to be implemented by 1 July 2012. Unfortunately, owing to its complexity and industry concerns, the Government announced that it will undertake further industry consultation in relation to this matter. This means further uncertainty for those members aged 50 and over about their contributions to super. Again, this is something we are monitoring closely and we will keep you informed of relevant changes as they come to light.

Extension of draw-down relief for those in receipt of an account-based pension

There was also an announcement affecting those in receipt of a Flexi Pension or a Term Allocated Pension. Since 2008-09, members have been able to receive a reduced minimum payment amount in recognition of the effect investment markets may be having on their capital. The Government had indicated previously that the minimum payment amounts would return to normal in 2012-13. However, with ongoing volatility in equity markets, the Government announced that the current limited drawdown relief will continue for a further year to assist retirees in recouping capital losses.

The reduction in the minimum payment amounts will apply only to Flexi Pensions and Term Allocated Pensions. We will write to members next year prior to 1 July 2012, confirming their pension payment options and the relevant minimum amounts.

Regulations giving effect to this change will be made before the new financial year.

Where do I go for more information on changes to super?

We will continue to use Super Informed eNews to inform you about changes to super and how they may affect you. If you would like to access advice specific to your situation, please don’t hesitate to contact UniSuper Advice on 1300 220 713.