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Superannuation in the spotlight

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The federal government has targeted superannuation again this year in its bid to create savings and achieve a budget surplus.

Increased superannuation guarantee rate

The government has confirmed the gradual increase in the superannuation guarantee rate, from the current 9% to 9.25% from 1 July 2013. The incremental increase will apply each financial year until it reaches 12% from 1 July 2019.

Lower concessional contribution cap

From 1 July 2012, the concessional contribution cap for people aged 50 and over will be halved. A standard flat rate of $25,000 per year will now apply to everyone, regardless of age. Concessional contributions include all employer contributions, such as superannuation guarantee and salary sacrifice amounts.

During the past year, the government mooted introducing a higher concessional cap for people aged 50 and over with a superannuation account balance below $500,000. However, this measure has been deferred until 1 July 2014 and no details have been provided about how it may actually work when it is implemented. It’s a case of “watch this space” to see what transpires.

In the meantime, if you’re aged 50 or over, it’s important to review any salary sacrifice arrangements you have in place to ensure that you don’t exceed the $25,000 concessional contributions cap commencing from 1 July 2012

If you’ve been using a transition to retirement (TTR) strategy that incorporates salary sacrifice into superannuation, you should also review it. The change in cap may significantly reduce the effectiveness of your TTR, especially if you’re under 60.

While the non-concessional cap hasn’t been changed, early planning to build your superannuation balance throughout your career is now imperative. You can continue to make a non-concessional contribution to your superfund up to $150,000 each year or up to $450,000 lump sum over a three year period up to age 65 years

Superannuation surcharge for higher income earners

Anyone with adjusted taxable income (ATI) over $300,000 will have 30% tax (double the current 15%) levied on concessional contributions (within the cap) made to superannuation. While this rate is still below personal marginal tax rates, it does reduce the tax effectiveness of contributions for higher income earners.

ATI is defined to include taxable income, concessional superannuation contributions, adjusted fringe benefits, total net investment loss, target foreign income and tax-free government benefits less child support payments.

If your ATI exceeds $300,000 you continue to save tax at 46.5% on your concessional contributions, however, your superfund will be required to pay 30% tax on the concessional contributions. This provides a net tax benefit of 16.5%. If your ATI is below $300,000 your net tax benefit continues at 31.5%.

This change is due to come into effect on 1 July 2012. Around 128,000 people will be affected by the increased rate, which will raise the government an estimated $480 million.

Changes to minimum pension payments

Reduced minimum pension payment rates have applied to account-based, allocated and market-linked pensions for the past three financial years. A 25% reduction will apply to the 2012–13 financial year, but will return to the full rate from 1 July 2013. 

If you are drawing a pension, for example, as part of a TTR strategy, you should review the impact of the changes to payment rates on your income level and pension account balance.

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