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Changes to superannuation
<< Back to Budget 09 introduction
1. Concessional Contribution cap
Effective 1 July 2009, the concessional contribution cap (money invested into super that attracts the concessional
15% tax rate) will be reduced. This includes contributions made via employer, salary sacrifice and personal
deductible contributions.
The transitional cap for those over age 50 will also be reduced:
What this means:
- Investing higher amounts into superannuation will be less tax effective after the end of this financial year.
- If you were planning to take advantage of the current high limits, you need to do so before 30 June 2009. Contact your industry super fund for more information on payment options.
- If your current payments into super will exceed the new limits shown above for 2009/2010 you should urgently review these arrangements. The tax that applies to excess contributions is 31.5% plus 15% contributions tax. Excess Concessional
Contributions will also count towards the non-concessional contributions cap.
- People planning to maximise contributions as they neared retirement should urgently review their current contributions and retirement strategies, as additional ‘last minute’ contributions will be significantly less tax effective after 30 June 2009.
- The maximum amount that can be split to a spouse has also been reduced in line with the Concessional Contribution limits. Any members currently accessing this strategy should review their financial situation for 2009/2010.
What hasn’t changed:
There were no changes announced to the non-concessional contribution limits or bring-forward rule.
2. Transition to Retirement (TTR) Pensions
Despite much speculation that these would be closed to new entrants, no changes were announced. However, the changes to the concessional contribution caps discussed previously may have a significant detrimental impact on this strategy for many people.
What this means:
Any members who are currently contributing in excess of $50,000 should urgently review their current payments and retirement strategies.
Possible solutions include:
- Reducing salary sacrifice or personal deductible contributions
- Reducing the income drawn from a TTR pension
- Possibly rolling some funds from TTR Pension back into a superannuation accumulation fund
Note: Many members salary sacrifice any annual bonuses as a matter of course, without knowing the amount of bonus. This could easily cause an inadvertent breach of the new lower concessional contributions cap, and result in tax being levied on these payments at the highest marginal rate. These arrangements should be reviewed.
3. Government Co-contribution
The ‘co-contribution’ amount that the government pays under this program will be reduced as a temporary measure. The new limits are listed below:
What this means:
- Eligible members should maximise the co-contribution available this financial year - Remember, contributions must be made by 30 June 2009.
- In 2009-2010 singles with incomes below $50,000 should investigate other contribution strategies, as it may be financially beneficial for them to make additional contributions after tax. This is because the benefit received from the Government co-contribution is higher than the salary sacrifice tax savings available.
Tip: Despite the temporary reduction in the Government co-contributions amount, this still remains an excellent way for lower income earners to ‘boost’ their super savings – the return on additional contributions paid is 100%.
4. Temporary reduction in minimum pension drawdown limits extended
The current temporary arrangement allowing a 50% reduction in minimum annual payments for retirement income streams will be extended to the end of the 2009/10 financial year (30 June 2010).
This extension to the minimum pension drawdown requirements acknowledges that while over recent months there have been some signs of stabilisation in investment markets, these have not as yet significantly impacted asset values/balances.
The announcement will apply to both existing and new pension/income stream members.
What this means:
- A member aged 65 with $100,000 in a pension account at 1 July 2009 would normally have been required to draw $5,000 as a minimum annual payment. This will now be reduced by 50% to $2,500.
- Reducing the amount being drawn may result in a small increase in Centrelink benefits. If this strategy is implemented, you should advise Centrelink within 14 days of the electing to receive reduced income.
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