Superannuation changes: what do they mean for you?

17 Apr 2013

The Government and Opposition keep talking about changes to superannuation. But what does it all mean and how will it affect you? 

As a general explanation, the government defines superannuation as a two-phase process – the accumulation phase and the pension phase.

The accumulation phase is usually when you are still working and therefore still earning superannuation payments; there is still a cash flow going in.

The pension phase generally happens in retirement as you are withdrawing your superannuation.

What’s important to remember is that to date, there is no tax on the pension phase of superannuation for members over the age of 60.

What are the changes?

Treasurer Wayne Swan estimates that the changes will affect the superannuation earnings of approximately 16,000 people.

Essentially, the changes mean that members’ super fund pensions that earn more than $100,000 annually on their balance will be taxed at 15 per cent, rather than tax free. This means that people with superannuation assets worth more than $2 million will be affected, assuming an earnings rate of 5 per cent.

The changes also include an increase in the tax-free cap of unindexed personal super contributions to $35,000 from 1 July 2013 for people aged over 60 and from 1 July 2014 for those aged over 50. Currently, there is a contribution cap of $25,000 for those over 50 years.

Why are the changes being made?

The superannuation changes will bring in around $900 million in savings for the budget, according to Labor estimates.

The changes are being introduced in an attempt to make the superannuation system stronger and fairer.

With an ageing population, it is expected that 20 per cent of Australia’s population will be over 65 in four years time. This means anything relating to superannuation is a national issue.

Essentially, the changes are supposed to give everyday working Australians the best deal from superannuation and the greatest opportunity to live well in retirement. 

How will it affect me?

The Superannuation Minister Bill Shorten says the reforms should not affect most retirees. The government estimates that the changes will affect 0.4 per cent of Australia’s projected 4.1 million retirees in the year 2014-15.

In terms of excess contributions, with the new system in place, people will be able to contribute $35,000. Above and beyond this, there will be a penalty for excess contributions.
These excess contributions will be taxed at the individual’s margin rate, rather than the 46.5 per cent that it is taxed now. For most people, this will mean it will be taxed at a significantly lower rate.

If you’re superannuation pension earnings are below $100,000 a year, they will remain tax-free.

What happens now?

Most of these measures will not come into play until July 2014 and this is dependant on the current government passing the laws before the September 14 election. It’s also dependant on which government comes into power as a result of the federal election as the Coalition has a completely different view on superannuation and which, if any, changes need to come into effect. 

Please remember, this does not constitute advice or serve as a replacement to seeking advice. Please discuss any specific questions or concerns you may have surrounding your superannuation with a professional.