Changes to super

August 2017

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Legislative update

2017 FEDERAL BUDGET

In May 2017, the 2017 Federal Budget included a handful of announcements that are likely to affect super in the event that they become law. Read our Federal Budget analysis for more information about these proposals.

2016 FEDERAL BUDGET

In November 2016, the Government passed a number of new super laws that were proposed in the May 2016 Federal Budget. The majority of these new laws took effect from 1 July 2017. These reforms represent some of the most significant changes to the super system in over a decade.

Below is a brief overview of the changes.

$1.6 million transfer balance cap

From 1 July, there’s an indexed limit, or cap, of $1.6 million on the amount of super an individual can transfer into the retirement phase (such as a UniSuper Flexi Pension). If you transfer an amount over the cap, you’ll be subject to an excess transfer balance tax. Any member with a balance between $1.6 - $1.7 million has until 31 December 2017 to bring their balance within the cap. Members with balances of $1.7 million or above need to bring their balance under the cap immediately as they will incur the excess transfer balance tax.

A reduction in the concessional (before-tax) contributions cap

On 1 July 2017, the annual cap on concessional super contributions reduced to $25,000 (indexed) for everyone.

A lower division 293 tax threshold

For the 2017-18 financial year, the threshold at which high income earners pay additional tax on super contributions (known as the ‘Division 293’ tax) will be lowered from $300,000 to $250,000.

If your income and relevant super contributions is more than $250,000, you’ll be subject to an additional tax of 15% (over and above the 15% standard rate on contributions).

A lower non-concessional (after-tax) contributions cap

From 1 July 2017, the annual non-concessional (after-tax) contributions cap is $100,000.

Anyone with a balance of $1.6 million or above generally can’t make further non-concessional contributions to super. People under age 65 will still be able to ‘bring forward’ up to three years of non–concessional contributions if their balance is under $1.6 million. See the new arrangements in the table below:

Total super balance on 30 June 2017
Maximum non-concessional contributions cap for the first year
Bring-forward period
Less than $1.4 million $300,000 3 years
$1.4 million to less than $1.5 million $200,000 2 years
$1.5 million to $1.6 million $100,000 No bring-forward period, general non-concessional contributions cap applies
$1.6 million Nil n/a

Ending the anti-detriment rule

The Government has removed the anti-detriment provision for all death benefits paid on or after 1 July 2017. There is a limited transition period for death claims where an individual has passed away before 1 July 2017.

New low income super tax offset

From 1 July 2017, the low income super tax offset replaced the low income superannuation contribution. The measure still provides a super boost of up to $500 per year for people earning an adjusted taxable income of up to $37,000. This avoids the possibility of low income earners paying more tax on their super contributions than their take home pay.

Allowing catch-up concessional contributions

From 1 July 2019, anyone with a total super balance of less than $500,000 can make ‘catch-up’ concessional contributions to their super by carrying forward any unused concessional cap allowance starting from the 2018-19 financial year (for up to five years), if eligible.

Anyone with a total super balance of less than $500,000 before the start of the financial year, who hasn’t fully used their concessional contribution cap for one or more of the past five financial years, can add to their super balance by making additional before-tax contributions, using their concessional cap allowance from the previous year(s).

Note: you can’t utilise unused concessional contributions from the financial year ending 30 June 2018 or prior years.

Changes to the spouse contributions tax offset threshold

Before 1 July 2017, a tax offset of up to $540 was available for individuals who made contributions to their spouse’s super with incomes of up to $13,800. The Government now allows more people to access the offset by extending eligibility to those whose recipient spouses earn up to $37,000 (subject to account balance limits). The tax offset will gradually reduce and will completely phase out once the income level of the recipient spouses reaches $40,000.

Changes to transition to retirement (TTR) pensions

On 1 July 2017, the Government removed the tax exempt status of investment earnings from assets that support a TTR pension. These are now taxed up to 15%. The taxed earnings that apply to TTR accounts are the same as those applied to our accumulation investment options. Also, once TTR members turn 65 or let us know they’ve met another condition of full release, they’ll now automatically be transferred into a Flexi Pension account. This will affect the fees and costs they pay.

On 1 July 2017, we removed the 0.16% administration fee for all Flexi Pension TTR members, but the investment fees and indirect cost ratio (ICR) for Flexi Pension TTR investment options now include an additional 0.13% per year. For most Flexi Pension members, this will mean a reduction in fees and costs, but this won’t be the case for members with higher account balances. We estimate that fees could be marginally higher for members with balances over $960,000, as the previous 0.16% administration fee was capped at $1,250 per year. However, the additional 0.13% in investment fees and ICR are not capped.

TTR members should also be aware that once they become Flexi Pension members, the balance of their Flexi Pension will count towards their transfer balance account. For more information see the Your guide to pensions – Flexi Pension PDS.

Claiming a tax deduction on your personal contributions

The Government now allows anyone under age 75* to claim an income tax deduction for their personal super contributions (i.e. the 10% work test requirement which previously applied has been removed).

Accumulation members will need to lodge a Notice of intent to claim or vary a tax deduction for after-tax super contributions form—as they do now—to claim the deduction.

DBD members can lodge the same form to claim a deduction for contributions made to their accumulation component. Unfortunately, DBD members can’t claim a deduction for contributions made towards their defined benefit component at this stage. We’ve notified the Australian Taxation Office (ATO) of this. If you have any questions, make an appointment with your local on-campus consultant or call us on 1800 331 685.

*Members aged 65-75 must also meet the work test.

More information

You can find more details on about these new super laws by visiting the ATO website.

Need help?

We understand that these changes might seem complex, which is why we’re committed to helping you understand how you might be personally impacted.

Before making any considerable changes to your super or pension, we encourage you to speak with a qualified financial adviser. You can make an appointment with UniSuper Advice on 1800 UADVICE (1800 823 842) or by emailing us.

UniSuper update

CAPITAL STABLE OPTION RENAMED ‘CONSERVATIVE’

Our Capital Stable investment option was renamed the Conservative option, effective 1 July 2017. As one of our Pre-Mixed options with a diversified portfolio weighted to defensive assets, the Conservative option’s assets are currently valued at just over $2 billion (as at May 2017).

Our Investment Committee regularly reviews the performance, profile and strategy for all UniSuper investment options. This change was made to better-reflect the Conservative option’s current investment strategy and asset allocation.

The Conservative option is designed to suit members seeking exposure to a range of asset classes who are less comfortable with large fluctuations in the value of their investments.

CHANGES TO INVESTMENT OPTIONS

We’ve made changes to some of our investment options, effective 1 July 2017. See the below table for more information.

Investment option Before 1 July 2017 From 1 July 2017
Cash Suggested time horizon: one year Suggested time horizon: very short time horizon (less than one year)
Risk labelling: negligible negative years in a 20-year period (Low) Risk labelling: negligible negative years in a 20-year period (Very low)
Australian Bond Investment objective: CPI over four years Investment objective: achieve (after Fund taxes) returns in excess of a relevant government bond index over five years (after adjusting for taxes)
Suggested time horizon: four years Suggested time horizon: five years
Risk labelling: four negative years in a 20-year period (High) Risk labelling: two negative years in a 20-year period (Medium)
Conservative Risk labelling: three negative years in a 20-year period (Medium to High) Risk labelling: two negative years in a 20-year period (Medium)
Strategic asset allocation:
  • Australian shares: 15%
  • International shares: 8.5%
  • Property: 6.5%
  • Cash & Fixed Interest: 70%
Strategic asset allocation:
  • Australian shares: 15.75%
  • International shares: 9.25%
  • Property: 5%
  • Cash & Fixed Interest: 70%
Conservative Balanced Suggested time horizon: four years Suggested time horizon: five years
Strategic asset allocation:
  • Australian shares: 23.5%
  • International shares: 16%
  • Property: 10.5%
  • Cash & Fixed Interest: 50%
Strategic asset allocation:
  • Australian shares: 25%
  • International shares: 17.5%
  • Property: 7.5%
  • Cash & Fixed Interest: 50%
Balanced (MySuper) Return target: CPI + 5.1% Return target: CPI + 4.6%
Strategic asset allocation:
  • Australian shares: 36%
  • International shares: 20%
  • Property: 9%
  • Infrastructure & Private Equity: 5%
  • Cash & Fixed Interest: 30%
Strategic asset allocation:
  • Australian shares: 38%
  • International shares: 22%
  • Property: 5%
  • Infrastructure & Private Equity: 5%
  • Cash & Fixed Interest: 30%
Balanced Strategic asset allocation:
  • Australian shares: 36%
  • International shares: 20%
  • Property: 9%
  • Infrastructure & Private Equity: 5%
  • Cash & Fixed Interest: 30%
Strategic asset allocation:
  • Australian shares: 38%
  • International shares: 22%
  • Property: 5%
  • Infrastructure & Private Equity: 5%
  • Cash & Fixed Interest: 30%
Sustainable Balanced Strategic asset allocation:
  • Australian shares: 42%
  • Australian Listed Property: 3.5%
  • International shares: 24.5%
  • Cash & Fixed Interest: 30%
Strategic asset allocation:
  • Australian shares: 45.5%
  • International shares: 24.5%
  • Cash & Fixed Interest: 30%
Growth Strategic asset allocation:
  • Australian shares: 44%
  • International shares: 26%
  • Property: 10%
  • Infrastructure & Private Equity: 5%
  • Cash & Fixed Interest: 15%
Strategic asset allocation:
  • Australian shares: 46.5%
  • International shares: 28.5%
  • Property: 5%
  • Infrastructure & Private Equity: 5%
  • Cash & Fixed Interest: 15%
High Growth Strategic asset allocation:
  • Australian shares: 57.5%
  • International shares: 27%
  • Property: 10.5%
  • Infrastructure & Private Equity: 5%
Strategic asset allocation:
  • Australian shares: 56.25%
  • International shares: 33.75%
  • Property: 5%
  • Infrastructure & Private Equity: 5%
Sustainable High Growth Strategic asset allocation:
  • Australian shares: 60%
  • Australian Listed Property: 5%
  • International shares: 35%
Strategic asset allocation:
  • Australian shares: 65%
  • International shares: 35%
Global Environmental Opportunities The Investment fee for the financial year ended 30 June 2017 was estimated to be 0.24% From 1 July 2017, we anticipate further investment fees including an extra 0.15% per annum compared to the previous financial year
Australian Equity Income Risk labelling: four negative years in a 20-year period (High) Risk labelling: five negative years in a 20-year period (High)
Global Companies in Asia Risk labelling: six negative years in a 20-year period (Very High) Risk labelling: five negative years in a 20-year period (High)

In addition, all investment options had the tolerance range for their strategic asset allocation changed from +/- 12.5% to +/- 15%, except for the Diversified Credit Income option, which now has a tolerance range of +/-20%.

ENHANCEMENTS TO EXTERNAL INSURANCE COVER

The following enhancements to our external insurance cover took effect from 1 July 2017:

  • Members who cease employment and travel or reside overseas will now be covered.
  • We’ve changed the rules in relation to what may offset an Income Protection benefit. While overall these changes are positive for members, there may be limited circumstances where a member may be adversely impacted.

Other important updates

The following amendments have been made to the UniSuper Regulations and Trust Deed, which govern how the Fund operates.

THE TRUST DEED HAS BEEN AMENDED WITH EFFECT FROM 1 JULY 2017 TO:

  • confirm that the Trustee may prevent the deduction of personal contributions to the Defined Benefit Division, and
  • allow commuted amounts from Flexi Pensions to be transferred to accumulation super (except where the pension was funded from a death benefit).

Note: The February 2017 edition of Super Informed outlined changes to the Trust Deed which, at the time of printing, did not have an effective date. Those amendments came into effect on 1 March 2017.

CORRECTION TO THE TRUST DEED

We’ve corrected a drafting error in the Trust Deed. The changes confirm that certain eligible DBD members who commenced their pension after their 65th birthday (but before reaching age 66) should have indexation applied in the calculation of their initial pension entitlement. We’ve contacted and compensated all members affected by the error.

THE REGULATIONS HAVE BEEN AMENDED WITH EFFECT FROM 1 JULY 2017 TO:

  • more explicitly state relevant regulatory requirements regarding the cashing of death benefits
  • reduce the investment switching fee from $13.80 to $13.10 for second and subsequent switches each financial year
  • remove the administration asset fee of 0.16% per annum on transition to retirement pensions in the accumulation phase (which will be replaced by the investment fees and indirect cost ratios that apply to accumulation products)
  • reflect the re-naming of the ‘Capital Stable’ investment option as ‘Conservative’.