Super Changes

The government recently announced some changes to superannuation. All of these announcements still need to proceed through the normal political process before becoming law, thus there may still be amendments. I have outlined the most salient points and the possible implications.

1.  Tax on pension earnings over $100k: Once an individual’s super fund has earnings above $100k, the excess will be taxed at 15%. Thus for a couple it is $100k each. The example used was if you had a super balance of $2M, you might expect income of greater than $100k per annum. You would only pay tax on an extra income at 15%. At first glance the impact would be restricted to those with big account balances, and only after the first 100k.

However the point to note with this is that capital gains tax is included in earnings. This greatly increases the reach of the proposed measure beyond the example of a $2M pension. For example with a fund that holds a property, (even one of significantly less value than $2M) if a large capital gain was realised in a given year, tax may be payable. 

Higher taxes may also apply upon death than previously. All assets currently owned by super funds are excluded from this provision. However it will mean greater complexity when managing the portfolio moving forward.

There are still a number of aspects to this change that remain unclear. Such as how this could work in a unitised fund, across more than one account, how the tax will be collected and whether it can be offset.

2. Higher contribution cap: From  1 July 2013, individuals over 60 will be able to make a $35k concessional contribution to superannuation. From 1 July 2014, individuals over 50 will be able to make a $35k concessional contribution to superannuation
While any increase in contributions cap is a welcome increase, this falls short of the proposed $50k limit for those over 50. 

Other changes
  • Account based pensions: (Super pensions) will be dealt with differently when assessing your eligibility for Centrelink age pensions. Perhaps not surprisingly they will be dealt with more harshly and potentially reduce eligibility for centrelink age pensions.
  • Lost super: The threshold for inactive accounts to be forwarded to the ATO is increased to $2,500 from $2,000. This is a positive development as it will preserve lost super accounts for a longer period of time.

  • Deferred lifetime annuities to be concessionally taxed: An annuity is a product that has received quite a bit of oublicity recently. You buy an annuity for a lump sum and it will pay you a predefined income for the rest of your life. This can increased in line with inflation. It is often a low risk way of providing retirement savings. If you purchase an annuity with your personal savings outside superannuation it will be eligible for the same concessional tax treatment that super assets supporting income streams will receive. This is a positive development.

By Myles Thornton