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Changes to superannuation were announced in the Federal Budget on 8 May 2018. These super changes are not yet law but it is well worth considering how your plans might be affected. The proposed changes include:
A cap on admin and investment fees on low balance super accounts (with less than $6,000) at 3% to prevent low super balances from being eroded by fees. This may see fees reduce for some fund members. A ban on all super fund exit fees. According to APRA, super members lost approximately $52m in exit fees in 2016/17.
Insurance within super to be opt-in rather than default for members under 25, members with balances of less than $6,000 and members whose accounts have not received a contribution in 13 months and are inactive. A number of Industry SuperFunds have already taken steps to change insurance coverage for younger members. It will be important to ensure no workers are left without insurance, such as new entrants to the workforce, women on extended maternity leave or low balance workers in high risk jobs. This change is likely to impact the insurance arrangements within super and is proposed to take effect from 1 July 2019.
All super accounts that have not received a contribution for 13 months, with balances below $6,000, to be classified as inactive and transferred to the ATO and for the ATO to attempt to proactively reunite those accounts with a member’s active account. Accounts not auto-consolidated will go to consolidated revenue until validly claimed. These changes may have implications for seasonal and other irregular workers. You will be able to inform your fund that whilst you are not making contributions you wish your monies to remain in your fund. You can currently seek to consolidate your super, for more information click here. The measure starts 1 July 2019.
Tightening rules for tax deductions on personal contributions to ensure super fund members who receive a tax deduction on personal super contributions are completing ‘Notice of Intent’ forms. The measure commences on 1 July 2018.
Allowing retirees to work more
The Pension Work Bonus to increase to $300 per fortnight (an additional $50). This allows pensioners to earn up to $300 each fortnight without reducing their Age Pension payments. The measure also extends coverage to self-employed members. Commences 1 July 2019.
Allowing retirees to make voluntary contributions in the first year of retirement
Retirees aged between 65 and 74 with a superannuation balance below $300,000 will be allowed to make voluntary super contributions for the first year that they no longer meet the work test requirements.
Retirement income products
A new retirement income framework, requiring super funds to offer whole of life products and to provide standardised information. The age pension means test rules will also be changed.
Pension Loan Scheme
Expansion of the Pension Loan Scheme to allow Aged Pensioners to boost their income with a loan from the government against the equity in your home. $11,799 for singles or $17,787 for couples per year can be paid in fortnightly payments to supplement existing income. These payments are a loan with the government, attract interest and need to be repaid from sale proceeds of your house or can be repaid at any time.
High income earners
High income earners (individuals who earn more than $263,157 a year) with multiple employers will be able to make wages from certain companies exempt from the Superannuation Guarantee (SG) to avoid breaching the Concessional Contributions Cap.
Self managed super funds
The maximum number of trustees allowed in a self-managed super fund will be raised from four to six, and from July next year the government will allow funds with “a history of good record-keeping and compliance” to obtain an audit once every three years instead of annually.
No change to legislated SG Increase
The Budget did not make any changes to the legislated increase in the SG beginning with an increase from 9.5 per cent to 10 per cent on 1 July 2021.
The government has previously proposed the following changes which have not yet been legislated:
On September 14th 2017 the Federal Government introduced a bill that will seek to close a legal loophole that allows employers to shortchange employees who make extra salary sacrifice super contributions.
Closing this loophole is a welcome step that shows progress is being made to tackle widespread Super Guarantee non-compliance, but a more comprehensive approach is necessary given the salary sacrifice changes will only help one in ten of those affected by unpaid superannuation.
Allowing older Australians to contribute downsizing proceeds into superannuation From 1 July 2018, individuals aged 65 and over will be able to make a non‑concessional contribution of up to $300,000 in proceeds from the sale of a principal residence, held for at least 10 years, into their superannuation. These new contributions will be in addition to any other voluntary contributions that people are able to make under the existing contribution rules and concessional and non-concessional caps.
Merging of the Superannuation Complaints Tribunal and other financial complaint services into a single complaints Authority
The government has proposed merging of the Superannuation Complaints Tribunal with the Financial Ombudsman Service and the Credit and Investment Ombudsman into a single Financial Complaints Authority. The new body will deal with all financial disputes, including superannuation, and provide binding dispute resolution, and will be funded by industry.
Super fund governance On September 14th 2017 the Federal Government introduced a bill to make changes to the requirements of super fund board members. This includes mandating one-third independent directors on boards, an independent chair and would require funds to explain why they do not have a majority of independent directors on their boards.
Industry SuperFunds equal representative model of employer and member representatives on boards has been a proven success delivering strong returns to members. These proposed legislative changes will seek to dismantle this successful model. Industry SuperFunds oppose this change.
Imputation credit changes
The Federal Opposition have announced a proposal to cease refunding unused imputation credits. This has resulted in widespread media commentary on the impact on retirees. See our explainer on the issue and how fine-tuning the policy could reduce or remove the impact on pensioners with small and moderate parcels of shares.