Australian Superannuation - Yet more changes!

Superannuation Changes

We seem to have a Government as present which, when faced with a fork in the road always decides to take the "wrong one". Consequently, facing a Budget blow out of very significant proportions (too much spending and too little "mining tax" revenue") they decided to focus of the "Cookie Jar", which is every right minded politician's view of superannuation. That particularly applies to their own pension arrangements, but that is a seprate matter.

The result has been an enormous public and media frenzy focussed on what the government "might do", weeks ahead of the formal 2013/2014 Budget. So, in the chaotic style that has become synonymous with this Government, and in an effort to "lance the boil", it announced the intended changes on April 5. The changes are summarised below and you must appreciate that there has been no legislation, and almost invariably some changes will be made, whether significantly or not, prior to implementation.

What these changes do is to continue to make superannuation inordinately complex, and take it out of the grasp of the ordinary man - and that is usually a recipe for disaster.

  • Tax free withdrawals from age 60 will continue unchanged.
  • From 1 July 2014 the tax exemption applying to pension account earnings will be limited to $100,000 per individual with 15% tax applying on any excess. This cap will be indexed by the CPI in $10,000 increments, and "similar" arrangements will "apparently" impact defined benefit funds.
  • Special arrangements will apply for capital gains on assets purchased before 1 July 2014:
    • For assets that were purchased before April 5, 2013, the reforms will only apply to capital gains that accrue after 1 July 2024;
    • For assets that were purchased from April 5, 2013 to 30 June 2014, individuals will have the choice of applying the reform to the entire capital gain, or only that part that accrues after 1 July 2014; and
    • For assets that are purchased from 1 July 2014, the reform will apply to the entire capital gain.
  • The $25,000 concessional contribution cap will remain but will increase to $35,000 (unindexed) for individuals aged 60 and over from 1 July 2013 and aged 50 and over from 1 July 2014.
  • From 1 January 2015 all new account based super pensions will be assessed as income for income test purposes rather than benefit from a reduction based on the capital component. All existing pensions at that date will be grandfathered.
  • A Council of Super Custodians will be established to ensure that any future changes are consistent with an agreed Charter of Superannuation Adequacy and Sustainability.

If there is a "sting" in these announcements that will affect Australian expats it is the second last item. More people are now likely to be affected by the income test and not qualify for an age pension. That includes individuals in Australia who are receiving foreign pensions.