Federal budget update


Treasurer Wayne Swan’s sixth Federal Budget revolves around ‘jobs and growth’ with a forecast return to surplus in the 2016-17 financial year.  Areas in focus are education, the National Disability Insurance Scheme and infrastructure investment. Many of the reforms regarding super, tax and support for families had previously been announced, and therefore few surprises were revealed.


The budget brought one significant announcement affecting retirees, and no new super changes beyond a reiteration of the super reforms the Government announced on 5 April 2013.


Downsizing retirees less likely to jeopardise age pension entitlements

From 1 July 2014 to 1 July 2017 an exemption from means testing will apply to the proceeds of family homes owned for at least 25 years, where at least 80% of proceeds (up to $200,000) are deposited into a special account. Proceeds and interest will be exempt from income and assets testing for up to ten years as long as no withdrawals are made. If a withdrawal is made, means testing will apply from that point.

The means testing exemption will include if an individual or couple move into a retirement village or granny flat and they are assessed as home owners (ie they pay more than the allowable limit, currently $139,500). However, the exemption doesn’t apply to those moving into residential aged care.

This measure is a pilot program and at this stage will only run for three years.


The budget brought no other major changes to the super system beyond the reforms announced by the Government last month.


Recap of super reforms announced on 5 April


A new tax on super earnings

From 1 July 2014 earnings on super pensions and annuities above $100,000 a year will be taxed at 15%. Previously such earnings were tax free.


Will you be affected?

To become liable for the new tax you would need to have (or expect to end up with) about a $2 million super balance. Treasury estimates that about 16,000 people will be affected in 2014-15, and this number will grow significantly in future years.


You can put more money into super

Currently there is a $25,000 a year limit on contributing to super from your pre-tax earnings. This limit is being raised as follows:

  • From 1 July 2013 the limit will be $35,000 per year for those aged over 60.
  • From 1 July 2014 the $35,000 limit will also apply for those aged over 50.
  • It is expected that by July 2018 the limit will have reached $35,000 for people of any age.


Will you be affected?

These changes are good news for savers wanting to put more money into their super. The $25,000 limit is thought by many people to be too low, especially given that it includes the compulsory super contributions made by employers.


Change to assessment of income payments from super account-based pensions and annuities under Government age pension income test

All financial investments, including super account-based pensions and annuities, will now be assessed under the same rules for Government age pension eligibility. (This process is called ‘deeming’).


Will you be affected?

If you expect to receive an income from a superannuation pension or annuity, this change may reduce or eliminate your entitlement to the Government age pension. However, this will only apply to new pension or annuities after 1 January 2015 – so current pensioners won’t be affected, unless they change products.


Easing of financial penalty for breaching the pre-tax super contribution limit

Currently, if you breach the pre-tax super contribution limit (see above) for the first time by up to $10,000 you can get a refund of your excess contribution. But from 1 July 2013 there will be no limit on the amount you can be refunded for any breaches.


Will you be affected?

If you inadvertently pay more into your super than the limits allow, you’ll be able to get your money back, even if it’s more than $10,000. (The refund will be taxed at your marginal tax rate and an interest charge will apply).


More favourable tax treatment for deferred lifetime annuities

A deferred lifetime annuity is effectively a form of insurance to cover the costs of living a long time. You can buy a deferred lifetime annuity when you retire for a lump sum (say $20,000) but only start receiving income from it after an extended period – say when you reach age 85.

From 1 July 2014, the Government will encourage the take-up of deferred lifetime annuities by giving them the same earnings tax exemption that other superannuation pensions and ordinary annuities receive. 


Will you be affected?

Deferred lifetime annuities are now more attractive as an option for ensuring your retirement savings last as long as you do.


More ‘lost super’ money to be held by the Tax Office

The Government had previously announced that super funds must transfer small lost and inactive super accounts to the ATO. This included accounts with balances of less than $2,000 where the account holder was uncontactable and hadn’t made contributions in the last 12 months, as well as those who originally joined through employer plans and hadn’t made super contributions for at least five years.

The Government has now announced that the account balance threshold will rise from the current $2,000 to $2,500 from 31 December 2015 and to $3,000 from 31 December 2016.


Will you be affected?

If you’ve got any lost super you’ve forgotten about, it’s now more likely that it will end up in the hands of the ATO. As long as you know your tax file number, you can use the ATO’s SuperSeeker at www.ato.gov.au to find your lost super. You can then transfer it to your preferred super account.


What next?

The above changes need to be legislated before they take effect.

To find out what the new rules could mean for you, have a chat with your financial adviser. 


Important information

This information is current as at 15 May 2013 and may be subject to change. It has been prepared without taking into account a person’s objectives, financial situation or needs. For that reason, before acting on this information, a person should consider its appropriateness having regard to their own objectives, financial situation and needs. Where the information relates to the acquisition, or possible acquisition, of a particular product, a person should read and consider the relevant Product Disclosure Statement (PDS) in deciding whether to acquire, or continue to hold, the products.

The products referred to are issued by Suncorp Portfolio Services Limited ABN 61 063 427 958 AFSL 237905 RSE licence number L0002059. Various products and services are provided by different entities of the Suncorp Group. The different entities of the Suncorp Group are not responsible for, or liable in respect of products or services provided by other entities of the Suncorp Group.

Tags: Retirement Super