Your pre-Budget update

Provided by Mercer. The information in this article does not necessarily reflect the views of the Trustee.

The Federal Government recently revealed a number of changes it plans to make to superannuation.

The package of proposals includes some tax changes on funds in the pension phase, as well as a welcome increase in the concessional contribution cap for older Australians. Proposed changes to deeming rules - which may affect your eligibility for the Aged Pension – were also announced.


Download Mercer's full report

Announced reforms to the Superannuation system: What does it mean for you?

In this report, we've gone a step further than just outlining the changes - we have thought about and outlined the impact for individuals, both working and retired, superannuation trustees and providers, and employers.


The first thing to understand about these changes is that while they have been announced – with the savings taken into account in the Government's May Budget – they are unlikely to be legislated before the September election.

Whether these proposed reforms will ever eventuate may depend on the outcome of the election.

Changes to concessional contributions cap

If the proposals do become law then the concessional contribution cap, which is currently $25,000 for everyone, will change as follows:

  • From 1 July 2013, those over the age of 60 will be able to contribute concessional contributions of $35,000
  • From 1 July 2014, those over the age of 50 will be able to contribute concessional contributions of $35,000
  • From 1 July 2018, it is likely that everyone will have a $35,000 concessional contribution cap.

Excess contributions

The Government says it will allow all individuals to withdraw any excess concessional contributions made from 1 July 2013 from their superannuation fund.

Under this proposal excess concessional contributions would be taxed at your marginal tax rate - in the same way as if you had received that money as salary or wages and chose to make a non-concessional contribution.

An interest charge will also be applied.

Currently, concessional contributions in excess of the annual cap are taxed at top marginal tax rate of 46.5 per cent rather than normal rate of 15 per cent, penalising people with income below the top marginal tax rate. There is currently a once-off option to withdraw up to $10,000 of excess concessional contributions

Deeming rules and the Age Pension

The government also said it would tighten the pension income test by applying "deeming" rules to superannuation pensions.

For calculation of the age pension, a retiree's investments are ''deemed'' to have earned a certain rate of interest on their money, regardless of the actual interest rates earned.

Currently, your retirement savings in superannuation are not subject to these deeming rules. Under this proposal standard deeming arrangements would apply to new superannuation account-based income streams assessed under the pension income test rules from 1 January 2015.

These are the same rules that currently apply to financial investments such as direct shares, bank deposits and managed funds.

As a result, those who are drawing a private pension may have more income that is assessed for the pension and allowances.

It is proposed that the change will not apply to existing account-based pension income streams, and those established before 1 January 2015, unless you change to another product.


Earnings from superannuation pensions & annuities to be taxed

From July next year, future earnings of more than $100,000 per annum on superannuation pensions and annuities will be taxed at 15 per cent instead of being tax-free.

Future earnings include dividends, interest, capital gains and potentially franking credits.

Similar treatment will apply to (notional) earnings for those in defined benefit schemes.

The change will only apply to those who are receiving a retirement income from their super and will not affect earnings during the accumulation phase of superannuation which are already taxed at 15 per cent.

This reform will not affect the tax treatment of withdrawals.

Withdrawals will continue to remain tax-free for those aged 60 and over and will attract existing tax rates for those aged under 60.

Increase in contribution tax for high income earners

The Government also confirmed that individuals with income greater than $300,000 will be subject to a 30% tax rate on contributions rather than 15%.

This was announced in last year's budget and will apply from 1 July 2012 but has not as yet been legislated.

Extending concessional tax treatment to deferred lifetime annuities

The Government will encourage the take-up of deferred lifetime annuities by providing these products with the same concessional tax treatment that superannuation assets supporting income streams receive.

Deferred lifetime annuities are a type of insurance product designed to provide income for people who live beyond the average life expectancy and may therefore run out of retirement savings.

Changes proposed by the Government would remove the taxation of earnings on these products during the deferred period. You may wish to seek advice about these products and whether they are now suitable for your own circumstances.

This reform will apply from 1 July 2014.





This information has been prepared by Mercer Outsourcing (Australia) Pty Ltd (MOAPL) ABN 83 068 908 912, Australian Financial Services Licence #411980. Any advice contained in this document is of a general nature only, and does not take into account the personal needs and circumstances of any particular individual. Prior to acting on any information contained in this document, you need to take into account your own financial circumstances, consider the Product Disclosure Statement for any product you are considering, and seek professional advice from a licensed, or appropriately authorised, financial adviser if you are unsure of what action to take. "MERCER" is a registered trademark of Mercer (Australia) Pty Ltd ABN 32 005 315 917. Copyright 2013 Mercer LLC. All rights reserved.

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