On 12 May 2009 the Federal Treasurer, the Hon Wayne Swan, delivered his second Budget which included a number of announcements related to superannuation.
Most of these changes have now been passed in legislation. We strongly recommend that you take a few minutes to consider how the changes may affect you.
Please contact the Fund office if you wish to discuss how the Budget announcements outlined below may affect you or to arrange any changes to your superannuation details. You may also wish to seek independent financial advice before you make any changes to your arrangements.
Concessional contributions are often referred to as pre-tax contributions. They include employer Superannuation Guarantee (SG) payments and any additional employer super contributions as well as your own voluntary salary sacrifice contributions. These contributions obtain their name as they are taxed at a concessional contribution rate of 15%.
From 1 July 2009, the concessional contributions limit will be halved from $50,000 to $25,000 per year. This limit had been scheduled to be indexed to $55,000 from 1 July 2009, but this will no longer occur.
For members aged 50 and over, their transitional concessional contributions limit will be halved from $100,000 to $50,000 per year, before reverting to the standard indexed concessional contributions limit from 1 July 2012.
To determine how these limits may affect you, please refer to the table below.
|
Financial Year
|
Members under age 50
|
Members aged 50 and over
|
|---|---|---|
|
2007/08
|
$50,000
|
$100,000
|
|
2008/09
|
$50,000
|
$100,000
|
|
2009/10
|
$25,000
|
$50,000
|
|
2010/11
|
$25,000 (indexed*)
|
$50,000
|
| 2011/12 |
$25,000 (indexed*)
|
$50,000
|
| 2012/13 onwards |
$25,000 (indexed*)
|
$25,000 (indexed*)
|
*Indexing rules yet to be confirmed
Please note - concessional contributions need to be calculated using a formula set by legislation and the Fund's actuary for Defined Benefit members. If you require further information about this process, please contact the Fund.
If you are only receiving employer contributions (i.e. not making any salary sacrifice contributions), the new caps are unlikely to affect you unless your annual salary is over $195,000. The income level where the caps begin to take effect will depend on your age and the employer contribution rate included in your employment arrangements (e.g. enterprise agreement, contract, etc).
Concessional contributions may be accepted above the limits; however, they will be subject to excess contributions tax of 31.5% on top of the 15% that has already been applied to these contributions. If your tax rate is below this level, this is likely to be a penalty that you want to avoid.
The ATO has asked ASFA (The Association of Superannuation Fund of Australia) to distribute this article regarding the changes to the superannuation concessional contributions cap which came into effect on 1 July 2009.
Non-concessional contributions are also often referred to as after-tax contributions.
As a result of the changes which apply to the concessional contributions limit from 1 July 2009 (see above), the non-concessional contributions limit rules have also changed, but not to the same effect.
From 1 July 2009, the non-concessional contributions limit will remain at $150,000 per year. This cap had been scheduled to increase to $165,000 from 1 July 2009, but this will also no longer occur.
For members aged under 65, the 3-year bring forward limit will remain at $450,000 from 1 July 2009. Again, this limit had been scheduled to increase to $495,000 from 1 July 2009, but this will also no longer occur.
Moving forward, the non-concessional contributions limit will be six (6) times the concessional contributions limit, so will only increase when the concessional contributions limit is indexed.
To determine how these limits may affect you, please refer to the table below.
|
Financial Year
|
How the limit is calculated
|
Members under age 65 (single year contribution) | Members under age 65 (3-year bring forward) |
Members aged 65 & over (single year contribution
only permitted)
|
|---|---|---|---|---|
|
2007/08
|
3 times the Concessional Contributions Limit
|
$150,000
|
$450,000
|
$150,000
|
|
2008/09
|
3 times the Concessional Contributions Limit
|
$150,000
|
$450,000
|
$150,000
|
|
2009/10
|
3 times the Concessional Contributions Limit
|
$150,000
|
$450,000
|
$150,000
|
|
2010/11
|
6 times the Concessional Contributions Limit
|
$150,000 (indexed*) |
$450,000 (indexed*) |
$150,000 (indexed*) |
| 2011/12 |
6 times the Concessional Contributions Limit
|
$150,000 (indexed*) |
$450,000 (indexed*) |
$150,000 (indexed*) |
| 2012/13 onwards |
6 times the Concessional Contributions Limit
|
$150,000 (indexed*) |
$450,000 (indexed*) |
$150,000 (indexed*) |
*Indexing will be subject to indexation of the concessional contributions limit
Despite rumours that the Federal Government co-contribution arrangements would be axed, it has remained, but the generosity of the Fund has been temporarily reduced.
From 1 July 2009, the co-contribution reduced from up to $1.50 for every $1.00 of contributions, to up to $1.00 for every $1.00 of contributions. This change effectively reverses the update introduced as at 1 July 2008.
This reduction is a temporary measure, designed to deliver savings of $1.4 billion over the next four years for the Federal Government.
The reduced rate will remain for three (3) financial years, before being increased to $1.25 for $1.00 in 2012/13, and then will return to $1.50 for $1.00 from 2014/15.
The co-contribution will now be provided as follows:
|
Financial Year
|
Member Contribution | Maximum Government Co-Contribution | Rate of Government Co-Contribution |
|---|---|---|---|
|
2008/09
|
$1,000
|
$1,500
|
$1.50 for a $1.00
|
|
2009/10
|
$1,000
|
$1,000
|
$1.00 for a $1.00
|
|
2010/11
|
$1,000
|
$1,000
|
$1.00 for a $1.00
|
|
2011/12
|
$1,000
|
$1,000
|
$1.00 for a $1.00
|
| 2012/13 |
$1,000
|
$1,250
|
$1.25 for a $1.00
|
| 2013/14 |
$1,000
|
$1,250
|
$1.25 for a $1.00
|
| 2014/15 |
$1,000
|
$1,500
|
$1.50 for a $1.00
|
The qualifying levels have not changed at this time. You will remain eligible for the maximum co-contribution each year (which will now be $1,000) at an income of $30,342. The maximum co-contribution will reduce for every dollar of income above that, and phase out completely at an income of $60,342.
Please note - personal contributions made by salary-sacrifice are not eligible to receive the Government's co-contribution. Personal contributions must be non-concessional (post-tax). For further information please refer to the ATO website.
Even with the reduced amount, the co-contribution is still a great way to save if you are eligible. After all, there aren't too many times the Government will match your savings.
From 1 July 2009, the Government will continue the measures which provide a temporary reduction to the minimum drawdown requirements from an Account Based Income Stream (ABIS).
Effectively, members drawing an income stream from the ABIS can take a 50% reduction in the amount of pension they are required to draw for the 2009/10 financial year. This move extends the measures announced in February 2009 which provided this same relief for the 2008/09 financial year.
This a minimum requirement only - Income Stream members can still continue to take amounts over this level.
The minimum drawdown requirements are:
|
Member's age
|
Minimum drawdown for 2008/09 | Minimum drawdown for 2009/10 | Minimum drawdown for 2010/11 |
|---|---|---|---|
|
Under 65
|
2%
|
2%
|
4%
|
|
65-74
|
2.5%
|
2.5%
|
5%
|
|
75-79
|
3%
|
3%
|
6%
|
|
80-84
|
3.5%
|
3.5%
|
7%
|
| 85-89 |
4.5%
|
4.5%
|
9%
|
| 90-94 |
5.5%
|
5.5%
|
11%
|
| 95 or over |
7%
|
7%
|
14%
|
The following is a Budget recommencdation only. An exposure draft has been released by the Government for comments.
From 1 July 2010, lost super accounts of less than $200 and accounts that have been inactive for more than 5 years will be automatically transferred to the Tax Office as unclaimed monies.
If you think you have lost super you can track it down at www.ato.gov.au/super or by calling 13 28 65.
Please complete our Easy Rollover form to transfer any such accounts to your Mercy Super Fund before these changes apply on 1 July 2010. Remember to check the exit fees and changes to your insurance cover with your other funds before you close the accounts.
The above is intended to be a summary of the key superannuation changes announced in the Budget.
Additional commentary can be found at BDO Kendalls website and more information is available on the Government's Budget website.
PLEASE NOTE
This information is provided by Mercy Super Pty Ltd (ABN 98 056 047 324), the Trustee of the Fund (Mercy Super Fund ABN 11 789 425 178). The Trustee is authorised representative number 268897 and is authorised to provide general financial product advice in relation to superannuation under AFSL 238507.
The information provided above by the Trustee of the Fund is of a general nature only and does not take into account the financial situation, objectives or needs of any individual. Accordingly, before acting on the information, the appropriateness of the advice should be considered in the context of the individual's objectives, financial situation and needs. Please also refer to the Fund's Member Booklets (Product Disclosure Statements) before acting on this information.