(03) 9020 2905Smelling a government cover-up doesn’t always require heightened political senses, such as those of Watergate journalists Bob Woodward and Carl Bernstein.
And you certainly don’t need to be a batty loner like Mel Gibson in “Conspiracy Theory”, or an alien abductee like David Duchovny in “The X-Files”.
Sometimes it’s pretty straight forward. The only thing required to uncover it is a common leaf blower – to blow through Canberra’s thick bulldust.
Which brings us to superannuation in Australia.
Late last year, the rules got changed again in the superannuation game. Change in super is not new. But it seems that every time the whistle has been blown in this game in recent years, all the penalties have been paid the same way.
And that is in favour of lower-income earners and against average and higher-income earners. (But the point of this column is not to argue whether that is a good or bad thing.)
The “conspiracy” is that super is being subtly shifted, under a government slogan of “fairness”, from a system designed to allow most Australians to save for their own retirement, to essentially a second safety net for lower-income earners to complement the government age pension.
For average-income earners and above, the major penalty has been the halving of limits for concessional contributions (predominantly your employer and salary sacrifice contributions). Millions of Australians have been impacted by these changes and their super pots will be tens, perhaps hundreds, of thousands of dollars worse off.
But lower-income earners have had super improvements showered on them.
These include the upcoming “low income superannuation contribution” (LISC) and the ongoing government co-contribution, which will now be targeted at those earning less than $47,000 a year.
There’s also the lift in Super Guarantee (SG) contributions from 9 per cent to 12 per cent from July 2013, and a higher contribution limit of $50,000 that will only apply to those aged over 50 with less than $500,000 in super (the 50-50-500 rule), due on July 1.
These changes will add tens of thousands of dollars to the average super balance for millions of Australians.
So, how do you make the most of the recent changes to super laws?
Higher-income earners
The general rule regarding superannuation planning used to be: spend your 30s and 40s reducing your mortgage and raising your kids, then start sacrificing into super in your 50s.
But the recent restrictions on super contributions mean you can no longer wait until you’re 50. You will have to put more money into super earlier, or you simply won’t be able to contribute enough to make it a worthwhile sum.
A 40-year-old now will only be able to contribute a maximum of a further $625,000 in today’s money before they turn 65. (Previously, a 40-year-old would have been able to contribute more than $2 million.)
The average full-time salary in Australia is about $68,700. Therefore, if you’re 40 and earning $90,000, then you’re already receiving around $8100 into your super.
As painful as it might be, start salary sacrificing another $5000-$10,000 a year through your 40s, simply because you won’t be able to ramp it up as much as previous generations when you turn 50.
Lower-income earners
The good news for lower-income earners is that, for most of the improvements to super aimed at helping you, you don’t have to do anything.
If you earn less than $37,000, you will get the LISC of up to $500 paid into your super fund automatically. And the higher SG rate of up to 12 per cent similarly requires no work.
You will have to something to make the most of the Government co-contribution, if you are eligible. The co-contribution for this financial year remains unchanged at up to $1000. But from next financial year, it falls to $500 (hopefully temporarily) and you will be ineligible if you earn more than $46,920.
And with regard to the 50-50-500 rule … sadly, the government still hasn’t announced the rules on that yet. But when they do, speak to a financial adviser about how you can make the most of that opportunity.
In short, don’t worry too much about any conspiracy. Just make one of your new year’s financial resolutions to be to make the most of the super rules as they apply to you.
Bruce Brammall is the author of Debt Man Walking (www.debtman.com.au) and a licensed financial adviser. bruce@debtman.com.au .