After months of complaining by backbenchers, industry experts and many retirees about the super changes made by Treasurer Scott Morrison in the Budget, he and the Prime Minister have shown sense in tweaking some of the crazy and unfair aspects of the changes.
A win for fairness
Some remain but we do have to get our Budget Deficit down, so let those go through to the keeper, but the lifetime cap of $500,000 backdated to July 2007 was one change that needed to be changed.
I have to say I like these changes to super and they haven’t cost much and they’re simply fairer. They might benefit the super rich because it’s harder to discriminate against them, but it means the hard-working, income-saving and non-excessive spending Australian is not punished for being the kind of responsible Aussie who should be rewarded, or at least not slugged.
Super wasn’t always compulsory…
The $500,000 lifetime cap dated back to July 2007 was the kind of thing dreamed up by a bean counter in Treasury. It was just too unfair on a lot of baby boomer Australians, who have unbelievably low balances because they worked a lot of their life without compulsory super.
Also, a lot of small business people had zero super and didn’t turn their small business into the Good Guys and sell it for $870 million. Many simply closed their business down with no capital gain, no big profits and no super. These people might have one residual asset that will help them in retirement – their home – which they could sell and roll some of the proceeds into super. The $500,000 cap was just too low.
The quest for a healthy retirement
The same goes for a lot of retirees with little in super who simply wanted to sell their one good asset – their home – to move to an apartment or the country, so that they would have a nest egg for super. And these nest eggs are even more important as we are living longer and you can’t forget that if someone is able to build up their super and then not take a pension. That’s a future win for the Budget!
Some critics say we’re looking after older Australians at the expense of younger Australians but the latter group will have compulsory super for over 45 years and that will give them a lot of super in retirement. And if they have a house to boot, they will be in a good place in 45 years time.
The changes outlined
So here are the new proposed super changes that most of us would care about, along with a number of the existing Budget proposals that have survived intact:
- The annual non-concessional or after-tax contribution to super will be $100,000 instead of the current $180,000. This starts 1 July 2017, so the $180,000 cap operates until then. Note that once your super fund has $1.6 million in it, you can’t make any more non concessional contributions but you could make concessional contributions, though any money in your pension mode fund over $1.6 million will see earnings taxed at 15%.
- The $500,000 lifetime cap dated back to July 2007 is dead. (Loss of $400 million over four years.)
- The super changes still deliver $3 billion over four years.
- Under-65s can still do three years of contributions in one year.
- If you have more than $1.6 million in your super fund, you can’t make non-concessional contributions after 1 July 2017.
- This $1.6 million limit will be tied and indexed to the transfer balance cap.
- You could now put $125,000 into super a year until $1.6 million is reached – $100,000 in non-concessional and $25,000 in concessional.
- Someone could put $325,000 in one go and a couple under 65 could put $650,000 in one go.
- Those 64-75 can now only add to super by passing the work test again. Under the old Budget proposals, anyone up to 75 could put in $25,000 a year to build up their super.
- Catch up super option won’t start until 1 July 2018 rather than 1 July 2017 to save money.
- The decision to lower concessional caps to $25,000 a year still applies to everyone starting on 1 July 2017.
- The Government backed down on its ending of the Low Income Super Contribution, which means those on $37,000 or less will have their tax on their super refunded back to their fund to help build it up more quickly.
- The income threshold for a spouse tax offset goes from $10,800 to $37,000 and phases out at $40,000. Here the maximum tax offset available is $540, when a spouse contributes $3000 or more to their low-income spouse’s super account, provided that he or she is doing some paid work.
Some of these were announced on Budget night and were taken to the election, while others were tweaked yesterday.
Sure, some wealthy people will be rushing to get $180,000 times three into their super fund by 1 July 2017 but they could have done that if Labor won the election.
Good news for older Aussies
The bottom line for me is that younger Australians will have great super balances because of compulsory super but there are a lot of older Australians who were hit super hard by changes to the Transition to Retirement Pension changes and the $500,000 lifetime limit. Yes, they would have survived and done OK but for a lot of them, who have played by the rules, have scrimped and saved to pay off their house, as a super solution, they were set to be slugged harder by a Coalition Government than they would have been under Labor.
The backflip we had to have
Of course super could always be made better and fairer but given what we have and how hard it is to change anything in Canberra nowadays, these super changes are a big improvement on the Budget night offerings, which I bagged from day one, despite liking the rest of the Budget.
This backflip is a super backflip – Yahoo!
Peter Switzer is the founder of the Switzer Super Report, a newsletter and website for self-managed super funds. www.switzersuperreport.com.au