One-minute update: sensible superannuation reforms

From

The changes to superannuation arrangements will generate $900 million over the forward estimates to 2015/16 (0.2 per cent of annual receipts) and Federal Treasury estimates that the main measure affecting earnings from superannuation assets will affect just 0.4 per cent of retirees in 2014/15.

What do the figures show?

Full details of the reforms can be found here.

The reforms can be summarised as:

  • Capping the tax exemption on earnings from superannuation assets at $100,000. From 1 July 2014, earnings above $100,000 will be taxed at 15 per cent rather than being tax free. “For superannuation assets earning a rate of return of 5 per cent, this reform will only affect individuals with more than $2 million in assets supporting an income stream. Treasury estimates that around 16,000 individuals will be affected by this measure in 2014/15, which represents around 0.4 per cent of Australia’s projected 4.1 million retirees in that year.”
  • Provide an unindexed $35,000 concessional cap to anyone who meets certain age requirements. The start date for the new higher cap will be brought forward to 1 July 2013 for people aged 60 and over. “Individuals aged 50 and over will be able to access the higher cap from the current planned start date of 1 July 2014.  The general concessional cap is expected to reach $35,000 from 1 July 2018.
  • Reforms to the treatment of excess concessional contributions. “The Government will allow all individuals to withdraw any excess concessional contributions made from 1 July 2013 from their superannuation fund. In addition, the Government will tax excess concessional contributions at the individual’s marginal tax rate, plus an interest charge to recognise that the tax on excess contributions is collected later than normal income tax.”
  • Extend the normal deeming rules to superannuation account-based income streams.
  • Deferred lifetime annuities will receive the same concessional tax treatment that superannuation assets supporting income streams receive. (A recommendation of the superannuation industry).
  • Further reforms of the treatment of “lost” superannuation. “The account balance threshold below which inactive accounts, and accounts of uncontactable members, are required to be transferred to the ATO will be increased to $2,500 from 31 December 2015, and to $3,000 from 31 December 2016.”
  • The Government will establish a Council of Superannuation Custodians to ensure that any future changes are consistent with an agreed Charter of Superannuation Adequacy and Sustainability.

What does it mean?
The proposed superannuation crackdown generated a lot of heat and column-inches. But in the end the reforms are fair and equitable and have little impact on the budget bottom-line. Provided the Government rules out other changes to superannuation in the May Budget, then the issue will be defused.

The Government will need to look elsewhere if it wants to find extra revenue to plug the budget gap. The superannuation changes will generate $900 million through to 2015/16 (annual receipts $367 billion).

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