WA Super News
2018/19 Federal Budget overview
2018/19 Federal Budget overview – Impact on super and retirement
Tackling multiple superannuation accounts, changing insurance for younger and inactive members, as well as increasing restrictions on superannuation fees were the key superannuation measures announced in the 2018/19 Federal Budget.
Importantly, the Budget did not contain any changes to the legislated increase in the Superannuation Guarantee, increasing from 9.5 per cent to 10 per cent in 2021. Further, there were no major changes to the taxation of super or the caps for voluntary contributions.
Other Budget measures focused on encouraging retirees to earn more and make voluntary contributions.
The Australian Institute of Superannuation Trustees (AIST) has provided an overview of the proposed changes below and we also note how some of these changes may affect you as a WA Super member.
Super and pension measures in a nutshell:
- Automatically combining multiple super accounts
- No more exit fees on all super accounts
- For accounts with less than $6,000, there will be a 3% cap on administration and exit fees
- Proposal to remove default insurance for under 25s, low balances and inactive accounts
- Pensions home equity scheme & Pension Work Bonus
- Allowing retirees to make voluntary contributions in the first year of retirement
Other non-super related measures and forecasts:
- Personal income tax cuts were the centerpiece of the Budget. In a first phase of a 7 year plan, 4.4 million Australians with incomes between $48,000 and $90,000 will receive a $530 cash rebate in 2018-19
- $2 billion funding for aged care
- $24.5 billion (out of the existing 10 year $75 billion infrastructure commitment) to new transport projects.
Further information on the announcements is available through this Treasury link.
Super measures in more details
Auto-consolidation of multiple accounts
The Government announced proposals to tackle multiple superannuation accounts. Therefore, all super accounts that have not received a contribution for 13 months, with balances below $6,000, will be classified as inactive and transferred to the ATO.
The ATO will be given powers to use data matching to automatically consolidate these accounts with members’ active accounts.
Impact on WA Super members – Inactive members who will potentially be impacted by this change will be contacted prior to any monies being transferred to the ATO to ensure they are not disadvantaged, unless you have previously advised us that you are happy for your super to go to ATO. Members should keep all their WA Super contact details up to date and review other super fund accounts that have small balances that may be affected.
The Government has proposed measures to reduce the impact of superannuation fees on member balances. The proposed measures are:
A cap on administration and investment fees on accounts with balances less than $6,000 at 3%.
Abolishing all superannuation fund exit fees.
Impact on WA Super members – WA Super’s fees are already low and highly competitive with any transaction fees charged on a cost recovery basis. Nonetheless, it is expected that WA Super members with very low balances will have their fees reduced even further and exit fees will no longer be charged.
Insurance in Superannuation
The Government will consult on proposals to abolish default insurance cover within superannuation for young people under 25, those with balances of less than $6,000 and inactive accounts that have not received a contribution for 13 months. If implemented, these changes may lead to higher insurance premiums.
Impact on WA Super members – These proposals would protect the superannuation balances of these members from being eroded by insurance premiums, but leave many younger and low balance members, including blue collar workers in hazardous jobs, without life insurance cover. Those members impacted will be communicated to prior to any changes.
Monitoring of ‘Notice of Intention to Deduct’ requirements
From 1 July 2018, the ATO will receive $3.1 million to check that individuals are completing ‘Notice of Intent’ forms when claiming tax deductions on personal super contributions. Some super fund members are not completing the form, which means the super fund does not deduct the contributions tax, but individuals receive a tax deduction in their tax returns.
Impact on WA Super members – Members who have contributed to their WA Super account directly from their bank account and wish to claim a tax deduction for this or subsequent financial years, should complete the ATO form and submit this to us by the required due date. You can find this form on our website here.
No change to legislated SG Increase
The Budget did not make any changes to the legislated increase in the superannuation guarantee beginning with an increase from 9.5 per cent to 10 per cent in 2021.
High income earners
High-income earners will be protected from inadvertently breaching the annual super contributions limits. Individuals who earn more than $263,157 a year from multiple employers will be allowed to make wages from certain companies exempt from the super guarantee. Under current rules, individuals earning more than this amount from multiple sources can easily find themselves contributing more than the annual $25,000 limit, resulting in a tax bill.
Retirement measures in more details
Encouraging retired home owners to use home equity to fund their retirement
The Pension Loans Scheme is a reverse-mortgage style scheme that enables retirees to release equity in their home in the form of an income stream. Centrelink administers the Scheme. The Scheme is currently only open to retirees who are eligible for a part Age Pension and is not widely used. The Government has proposed to extend the Scheme to all retirees, including full rate Age Pensioners and self-funded retirees.
This will enable single retirees who own their own home to boost their income by up to $11,799 and couples to boost their retirement income by up to $17,800 without impacting their eligibility for the Age Pension or other benefits.
Encouraging retirees to earn more
The Pension Work Bonus allows pensioners to earn up to $250 each fortnight without reducing their Age Pension. It will be expanded to allow pensioners to earn an extra $50 a fortnight ($1,300 a year) without reducing their pension payments. The Pension Work Bonus will also be expanded to self-employed people who will be able to earn up to $7,800 a year.
Allowing retirees to make voluntary contributions in the first year of retirement
Retirees aged between 65 and 74 with a superannuation balance below $300,000 will be allowed to make voluntary super contributions for the first year that they no longer meet the work test requirements.
Comprehensive income products for retirement
The Government has proposed introducing a retirement income covenant requiring superannuation trustees to formulate a retirement strategy. It will require trustees to offer Comprehensive Income Products for Retirement.
Please note: Most of the changes are proposed to commence 1 July 2019, however the Government will consult with the super industry and any changes still need to legislated by Parliament, so they may be subject to further change.
Source: AIST Policy News - 9 May 2018