This year’s Federal Budget includes a range of changes to super. Although not as far-reaching as last year’s changes, it includes measures to protect super from erosion and introduces a new retirement income framework.
Below are some of the proposed changes which might affect you.
The Government’s proposing to abolish default life insurance cover within super for:
- new members aged under 25
- accounts that haven't received contributions in 13 months and are inactive
- low balances of less than $6,000.
These new proposals aim to protect the super balances of these members from being eroded by insurance premiums.
Importantly, members will still have the opportunity to obtain insurance cover if they choose to.
Tasplan intends to adopt the Insurance in Superannuation Voluntary Code of Practice (Code), which commences on 1 July 2018. The Code provides minimum requirements in relation to insurance within super funds.
‘Tasplan will be an early adopter of the Insurance in Superannuation Voluntary Code of Practice and is targeting full implementation of Code-compliant default insurance arrangements by April 2019, ahead of the 2021 deadline,’ says Tasplan CEO Wayne Davy.
‘We’ll be publishing a transition plan on our website by the end of 2018 detailing how and when Tasplan will meet these requirements.’
In an attempt to prevent people with multiple super accounts having their savings excessively eroded by fees, the Australian Taxation Office (ATO) has been given the power to actively reunite Australians with their lost and inactive super.
Under the proposals, all super accounts that haven’t received a contribution for 13 months, with balances below $6,000, will be classified as inactive and transferred to the ATO. These are typically accounts belonging to young members, low income earners and seasonal workers.
The ATO will then use data-matching to automatically combine these accounts with members’ active accounts.
The Government expects the new system will reunite $6 billion of super to three million members’ active accounts in 2019-20.
Rather than waiting until 2019-20 to see if you have any lost or inactive accounts, why not jump onto our Combine your super tool now.
The Government has proposed two new measures to tackle the impact of super fees on member balances and make it easier for members to combine their accounts. It will abolish super fund exit fees and cap certain fees on balances of less than $6,000 at 3%. The Government estimates that the fee cap on low balances will return $570 million to super fund members.
High-income earners with multiple employers will be protected from inadvertently breaching the annual super contributions limits.
Individuals who earn more than $263,157 a year from multiple employers will be allowed to make wages from certain companies exempt from the super guarantee.
Under current rules, individuals earning more than this amount from multiple sources face a tax bill if they contribute more than the annual $25,000 limit.
Seeking financial advice is important if you think you might be nearing your annual limit. If you go over these caps, you may be liable for additional tax on the excess contributions.
The Pension loans scheme is a reverse-mortgage style scheme that enables retirees to release equity in their home to boost their retirement income. The Scheme, administered by Centrelink, is currently only open to retirees who are eligible for a part Age Pension and is not widely used.
The Government has proposed extending the Scheme to all retirees, including full rate Age Pensioners and self-funded retirees.
Under this Scheme, full pensioners will be able to increase their income by up to 50% of the Age Pension. This will allow single retirees who own their own home to boost their income by up to $11,799 and couples to boost their retirement income by up to $17,800 without impacting their eligibility for the Age Pension or other benefits.
Reverse mortgages are complicated and won’t suit everyone’s circumstances. We encourage seeking financial advice if you are considering a reverse mortgage. You can read more about the Pension loans scheme in the Government’s Preparing financially for a longer and more secure life fact sheet.
The Pension work bonus allows pensioners to earn up to $250 each fortnight without reducing their Age Pension. It will be expanded to allow pensioners to earn an extra $50 each fortnight ($1,300 each year) without reducing their pension payments.
The Pension work bonus will also be expanded to self-employed people who will be able to earn up to $7,800 each year, without reducing their pension payments.
The Government expects 88,000 people to take up the option to work more as a result of these changes.
Retirees aged between 65 and 74 with a super 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.
From 1 July 2019, new Age Pension means testing rules will be introduced for pooled-lifetime income streams. The rules will assess a fixed 60% of all pooled-lifetime product payments as income, and 60% of the purchase price of the product as assets until age 84, or a minimum of 5 years, and then 30% for the rest of the person’s life. This will mean people using these products will lose less pension entitlements.
To read more, see the Government’s fact sheet on Preparing financially for a longer and more secure life.
The Government has proposed introducing a new framework for super funds to develop retirement income products. Currently there are no obligations on super fund trustees to consider the retirement income needs of members.
The new framework requires funds to offer Comprehensive Income Products for Retirement that provide individuals income for life, no matter how long they live. The Government will release a position paper for consultation shortly, outlining its proposed approach to the proposal.
The Government’s tax relief plan, designed to encourage and reward working Australians and reduce cost pressures on households, has three parts.
- Tax relief for middle and low income earners now.
- Protecting what Australians earn from the impact of bracket creep.
- Ensuring more Australians pay less tax by making personal taxes simpler. As a result of the plan around 94% of taxpayers are projected to face a marginal tax rate of 32.5% or less in 2024-25.
The Government’s Tax relief calculator allows you to enter your taxable income and see what sort of income relief the changes could mean for you.
There was less than expected in the Budget specifically for women, particularly around super, but Minister for Women, Kelly O’Dwyer, issued a media release that confirmed the Government will be delivering a ‘Women’s economic security statement’ in spring 2018 which will address issues including the super gap and workforce participation.
This article contains information or advice that’s intended to be general in nature and which was prepared without taking into account your personal objectives, financial situation or needs. Because of that, before acting on any information or advice in this article, please consider whether it’s appropriate to your personal circumstances, talk to a financial planner and consider the relevant Member guide, available at tasplan.com.au or by calling 1800 005 166, before making a decision about whether to acquire the products.
The trustee of Tasplan Super (ABN 14 602 032 302) is Tasplan Pty Ltd (ABN 13 009 563 062). AFSL 235391. Copyright © 2018 Tasplan Pty Ltd. All rights reserved.