Implications of changes to Super in 2012 Federal Budget for High-Earners and Pensioners

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Implications of changes to Super in 2012 Federal Budget for High-Earners and Pensioners

Superannuation

CC cap reduction confirmed

Date of effect: 1 July 2012 and 1 July 2014David Hasib - Senior Financial Planner

The uncertainty around the concessional contribution (CC) cap for people aged 50 and over has been resolved in the short term. On 1 July 2012, the cap will halve from $50,000 to $25,000 for all super fund members aged 50 or over, regardless of their account balance.

The plan to allow those aged 50 or over to contribute up to $50,000 pa if they have less than $500,000 in super will be delayed until 1 July 2014. This is to give the Government time to work out the details regarding how they are going to monitor account balances and implement this measure.

Implications

Super fund members aged 50 or over should:

  • Consider taking full advantage of the current cap by making concessional contributions of up to
    $50,000 before 30 June this year
  • Review their concessional contributions, especially from 1 July, to make sure they don’t exceed the reduced cap
  • Consider making non-concessional contributions if impacted by the cap reduction, and
  • Review their contributions and income payments if using the ‘transition to retirement’ strategy.

30% contributions tax for higher earners

Date of effect: 1 July 2012

As reported in the media before Budget night, the Government plans to increase the tax on concessional super contributions from 15% to 30% from 1 July 2012 for high-earners on more than $300,000.

While this has made employer super contributions (including salary sacrifice) less attractive for individuals who are required to pay 30% contributions tax, it’s still 15% less than the marginal tax rate of 45% they would pay on their salary.


Retirement incomes

Drawdown relief for super pensions extended

Date of effect: 1 July 2012

The Government confirmed that the 2011/12 minimum pension drawdown levels will continue for another 12 months before increasing to the ‘normal’ levels from 1 July 2013.

Age at start of pension (and 1st July each year)

In 2011/12 & 2012/13

From 1st July 2013

Under 65

3%

4%

65-74

3.75%

5%

75-79

4.5%

6%

80-84

5.25%

7%

85-89

6.75%

9%

90-94

8.25%

11%

95+

10.5%

1

Implications

For pensioners who receive enough of a pension this is good news, as they won’t be required to draw more income than they need. As a result, they can keep more money in their pension account, and not be taxed on investment earnings. Also, they won’t be forced to sell investments that may have recently fallen in value to fund the additional income payments, and could keep more money invested to participate in any market recovery.

Tax-free super pension incomes to increase

People aged 55 to 59 will be able to receive more tax-free income from a superannuation income stream/pension than they can in 2011/12. These increases result from the marginal tax rate, income threshold and LITO changes legislated as part of the Clean Energy Legislative Package (see Personal tax section).

 

In 2011/12

From 2012/13

From 2015/16

Tax-free incomes[1]
(per person aged 55 to 59

from income stream[2])


$48,158


$49,753


$50,189

Increase on 2011/12

 

$1,595

$2,031

 

Aged care changes

Date of effect: Various

The Government confirmed its commitment to the landmark aged care changes announced on 20 April 2012.

Under the ‘Living Longer Living Better‘ plan, the Government will:

  • Overhaul the means-testing so care recipients with greater financial means make a greater contribution
  • Make it easier for older Australians to stay in their home while they receive care
  • Ensure more people will get to keep their family home and avoid the need for fire sales, and
  • Establish a simplified gateway for accessing aged care information.


[1] Ignores Medicare Levy, but includes LITO and SATO/SAPTO, where applicable.

[2] Assumes no income from other sources is received.

 

Disclaimer:

The advice provided on this document is General Advice Only. It has been prepared without taking into account your objectives, financial situation or needs. Before acting on this advice you should consider the appropriateness of the advice, having regard to your own objectives, financial situation and needs. If any products are detailed on this document, you should obtain a Product Disclosure Statement relating to the products and consider its contents before making any decisions.  

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