Super changes: Preparing for the expected

SUMMARY: While complex changes to super have been ditched, there’s no word on increasing concessional contributions limits. And, to be sure, don’t hold your breath.

The wording of the Coalition’s election promise for superannuation of “no unexpected negative changes” in its first term was very deliberate

If the Coalition flagged a change before the election, then it became an expected change. And if they removed a proposed new tax, then it wouldn’t be considered negative.

Treasurer Joe Hockey has now announced changes that cover both sides of that carefully crafted promise.

The likely ditching of the “low income superannuation contribution” (LISC) is an expected change. When it was announced by the previous Labor Government prior to the 2010 election, it was directly tied to minerals resource rent tax (MRRT). That was how it was to be funded and the Coalition repeatedly promised it would go when the MRRT did. (Interestingly, it looks like it is still considering it’s position on this proposal and may not ditch it.)

Similarly, the two-year delay in the increase from 9% to 12% for the superannuation guarantee (SG) was expected.

Both are, unarguably, negative changes for individuals and for the retirement savings of the nation. The removal of LISC will reportedly impact on 3.6 million Australians, who mostly fit into society’s lower-paid.

Deferring the increase in SG will also take out billions out of the system for a greater number over a longer period of time. But, importantly, the SG rate will still rise to 12%. It just won’t get there as quickly as the previous Labor Government had planned.

But both were well flagged and stated intentions of a Coalition Government.

Last week’s cancellation of the tax on super pension funds was a cancellation of a new, proposed, tax. It fit into the second part. The Abbott Government had no stated direct policy on getting rid of this tax in Opposition.

However, by omission, it had flagged its intention to probably drop it. When the Gillard government announced its raft of changes to super prior to this year’s budget, the Coalition said it would vote through some of the changes if the proposals were split up. For example, this included the lift in concessional contributions for the over 60s from $25,000 to $35,000 for the 2014 financial year, which was allowed to pass.

One that was hived off was the $100,000 pension tax, which Labor then decided to take to the election as a policy.

Is this a win for wealthier Australians with large super balances? Yes, but while the tax was always likely to hit Australians with far less than the $2 million balances Labor had flagged, it was going to be a horrendously complex tax to implement, as flagged in this column (20/5/13).

There were too many “what ifs” when it came to the super pensions tax. Long reporting deadlines and having multiple super funds were going to make monitoring and imposition of the tax a nightmare. It was going to raise $2.4 billion over the forward estimates. But how much was it going to cost to raise that figure?

Any other changes for super?

Yes, two.

The proposed “council of superannuation guardians” is dead. This was a cynical attempt, after six years of constant fiddling by Labor, to declare that the fiddling must finish. Any future changes to super would have to be approved by an independent council.

The concept is nice – have an external and independent body approve future changes. The timing stunk. You simply can’t make all the changes that you want to make to super, then declare that future governments can’t make their own adjustments. Had they implemented this policy at the end of their first term, or the start of the second, it might have been acceptable, in place and politically difficult to dismantle.

Second, the Coalition has decided to keep the “lost super” threshold increase from $2000 to, eventually, $6000. This is the limit below which super funds must transfer small accounts to the ATO.

Governments want to find the rightful owners of old, lost, super funds and are moving in that direction. But in the meantime, these small super funds need a home where they won’t be eaten by costs.

Do we now have some certainty in superannuation?

Probably. For a period. These changes do “clear the decks” of the contentious proposals of the previous government.

Importantly, it would appear that the move from $25,000 to $35,000 for the over 50s from 1 July 2014 is now safe. Those who will turn 50 during FY15 should be able to plan to lift their contributions from mid next year.

Will we see concessional contributions lifted back to the levels of $50,000 that were part of the Howard Government’s 2007 changes? Don’t hold your breath.

While the Rudd/Gillard governments admitted their cuts to contribution limits went too far, even the Coalition accepts the original $50,000 limit – which the initial $100,000 was always going to have dropped to by now – was probably too generous and too big a burden on the public purse.

However, the real value of even the $25,000 concessional limit is still being eaten away by inflation. When originally conceived, it was supposed to be indexed, lifting in $5000 lots. But Labor froze them, then froze them again and again.

The $25,000 cap is, again, due to be lifted to $30,000 for the FY15 year, which starts next 1 July. That will put the under-50s limit just $5000 ahead of the over-50s CC limit. Will the over-50s limit be pegged at $10,000 more than the under-50s limit, or will it sit at just $5000 above?

What should you do?

If you turn 60 in this financial year, or 50 in the next, then start preparing now to make the most of your higher limits. Concessional contribution limits have always been use-them-or-lose-them, so if you’re able to go right up to your limits, then you should aim to do so.

There is six months until the Abbott Government’s first budget. A lot of economic water can pass under the bridge before then. Certainly, confidence for both business and consumers appears to be picking up, which could flow through the economy and have a positive impact on the state of the federal budget.

And for those of us with a strong interest in longer-term financial considerations such as superannuation, there is hope that the down cycle of negative superannuation changes has come to an end.


The information contained in this column should be treated as general advice only. It has not taken anyone’s specific circumstances into account. If you are considering a strategy such as those mentioned here, you are strongly advised to consult your adviser/s, as some of the strategies used in these columns are extremely complex and require high-level technical compliance.

Bruce Brammall is director of Castellan Financial Consulting and the author of Debt Man Walking. E: