The federal government has announced a series of amendments and budgetary cuts that will further alter Australia’s superannuation system.
The changes, announced yesterday, come as part of the government’s mid-year economic and fiscal outlook.
Under the changes, the government has moved to make superannuation “fairer” through the low-income superannuation contribution (LISC), extended drawdown relief for account-based pensions of self-funded retirees and intends to hold further consultation with industry on compliance cost issues in relation to the higher concessional contributions cap for those aged 50 and over.
Low-income superannuation contribution
As previously announced, individuals earning up to $37,000 would effectively pay no tax on their superannuation guarantee contributions from 1 July 2012, the government said.
Under the LISC, the 15 per cent contributions tax will effectively be refunded into superannuation accounts.
As part of the move, the government will “streamline” the LISC so that individuals automatically benefit from it without being burdened with extra paperwork.
Rather than requiring eligible workers to fill out a tax return or other type of form, the Australian Taxation Office (ATO) will verify an individual’s income using available data.
The Association of Superannuation Funds of Australia (ASFA) said the ATO’s decision to auto-assess the entitlement of low-income earners was sensible.
In total, 3.6 million Australians were expected to receive the rebate, ASFA said.
“This ensures there is equity in the system and it does not place an undue burden on those least well off; the rebate will just happen automatically,” ASFA chief executive Pauline Vamos said.
The government’s changes will also lead to a reduction in the matching rate and maximum payment of the voluntary superannuation co-contribution from 1 July 2012, when the new LISC commences.
“This is about looking at a more sustainable and comprehensive measure that will benefit more people,” Vamos said.
Concessional contribution caps
In terms of concessional contribution caps, Financial Services and Superannuation Minister Bill Shorten said the government would “pause the indexation” of the superannuation concessional contributions caps for one year in 2013/14, which would provide savings of $485 million over the forward estimates.
The government also intends to undertake further consultation on compliance cost issues raised by industry in relation to the higher concessional contributions cap for those aged 50 and over.
Drawdown relief
Shorten said the government would also extend the drawdown relief for account-based pensions of self-funded retirees.
The reduction in the minimum payment amounts will apply to account-based, allocated and market-linked pensions.
Regulations giving effect to this change will be made before the new financial year.
Challenger retirement incomes chair Jeremy Cooper said the extension to drawdown relief for account-based pensions highlighted a “serious shortcoming in Australia’s superannuation system”.
“While market-linked ‘pensions’ invested heavily in equities were the most popular retirement product in the bull market, they can’t be relied on to provide bedrock or lifetime retirement income, and need to be supplemented with fixed income investments capable of providing guaranteed income payments each month,” Cooper said.
“This fifth consecutive government rescue effort also highlights the need to encourage products capable of properly managing market, inflation and longevity risk.”
Conversely, the Small Independent Superannuation Funds Association (SISFA) said the continuation of drawdown relief was a welcome decision.
“While SISFA has previously said it would have preferred the government to permanently retain the original 50 per cent reduction, the continuation of the 25 per cent discount is nevertheless welcome news,” SISFA chair Michael Lorimer said.
