Default life insurance cover within super will switch from ‘opt out’ to ‘opt in’ for members younger than 25 in one of the more controversial changes in the 2018 federal budget.
The Financial Services Council (FSC), whose insurance sector members stand to lose $3 billion in premiums under the change, warned that under-25s with high-risk jobs or young families could end up “slipping through the safety net”.
Other changes in the ‘Protecting Your Super’ package (which has a 1 July 2019 start date) include a ban on exit fees and a 3 per cent cap on total fees on account balances below $6,000.
Inactive super accounts with a balance of less than $6,000 will be mandatorily sent to the ATO, which will then attempt to reunite the funds with active accounts via a data-matching project.
The government has also announced more changes to concessional contributions.
People aged 65-74 with balances below $300,000 will receive a one-year exemption from the work test for voluntary contributions.
High income earners (specifically, those earning over $263,157) will be allowed to nominate which wages can be excluded from super guarantee obligations from 1 July 2018, thereby avoiding inadvertently breaching the $25,000 contribution cap.
It has also been confirmed that SMSFs will be allowed to have six members, up from the current limit of four.
The Pension Loans Scheme, which effectively allows retirees to take out a reverse mortgage to top up their pension, has also been expanded in the budget.
The government will introduce a ‘retirement income covenant’ that will require super fund trustees to offer comprehensive income products for retirement (CIPRs), as recommended by David Murray’s 2014 Financial System Inquiry.
New age pension means testing for pooled products such as CIPRs has also been announced in line with recommendations by the Actuaries Institute, to be implemented on 1 July 2019.
The budget also reveals extra funding for ASIC and APRA to assist in their involvement in the banking royal commission.
ASIC will receive an extra $10.6 million over two years commencing in 2017-18, while APRA will receive a top-up of $2.7 million in 2018-19. These measures will be offset by increased levies on industry.
Tax cuts were the expected centrepiece of the federal budget, targeting low and middle-income earners who will receive up to $530.
The tax code will be “simplified and flattened” with the 37 per cent bracket removed completely, according to Treasurer Scott Morrison.
“This will mean that by 2024-25, around 94 per cent of Australian taxpayers are projected to face a marginal tax rate of no more than 32.5 per cent. That compares with 63 per cent if we leave the system unchanged,” Mr Morrison said.
Higher-than-expected tax receipts thanks to high employment allowed the government to project a $2.2 billion surplus in 2019-20, a return to surplus one year earlier than predicted in the previous year’s budget.
