Don’t underestimate the simple changes
There is plenty to offer in this year’s budget. From a range of tax cuts, new tax offsets, a massive package of policies aimed at helping older Australians and new protections on super accounts – it’s likely there’s extra money heading to your hip pocket.
But what do the budget announcements mean for super funds and what’s in it for you? Here’s our top list.
More protection for your super account
The government will ban exit fees, cap excessive fees on accounts with balances below $6000 and give more power to the tax office to consolidate inactive accounts.
After July 1, 2019 insurance premiums won’t be taken out of super without your permission if you are under 25, or if your account balance is less than $6000, or if you don’t make any contributions for 13 months and the account is inactive. Good news for some young workers but it does mean if you are a person who needs the cover, you will need to be more diligent to keep it in place.
Relaxation of the work test
Recent retirees may get one more year to make super contributions without having to meet the work test. To use this proposal, you will need to be between the ages of 65 and 74 and have less than $300,000 in super. Standard contribution limits will still apply, including the concessional catch-up contribution rule.
SMSFs get the opportunity to add more members with the maximum member limit increased from four to six. This might suit people who have large families, with three or four kids.
Well-managed SMSFs with a fully compliant history may be able to ease their administrative costs and burden by dropping back to an independent audit every three years, rather than every year.
To help keep the system working efficiently, there are a few administrative fix-ups, such as giving extra money to the ATO to monitor that appropriate tax deductions are claimed on super contributions. High income earners with multiple employers will also get a little bit more flexibility to help reduce the likelihood of inadvertently breaching the $25,000 super contribution limit.
More flexibility to meet retirement income needs
The introduction of a retirement income framework (which includes significant age pension concessions to annuity style products) signals the government is serious about the industry having more on offer for super members at this critical decision point.
Very practical measures like the extension to the pensioner loan scheme should provide a lot more flexibility to people of age pension age to use the equity in their home to help increase their income in retirement.
Pensioners will be able to earn $300 a fortnight in employment income and it will not be counted under the age pension income test – that’s an increase of $50 a fortnight. Self-employed people will also be eligible for this concession.
Women’s finances get a boost
Apart from the tax cuts and super protections measures that will benefit the many women who work part time and are on lower incomes, the government will boost funding to help build women’s financial capability and literacy. More announcements are scheduled for later this year.
Considering the range of complex and often systemic issues that make it hard for women to achieve economic security (with women retiring with about half the super balances of men), a well-funded and well-designed policy approach is critical to closing the gap.
While these proposals might seem like simple changes, don’t underestimate their impact.
Combined with the big changes to super and the age pension in 2017, the goal posts for the entire superannuation and retirement planning system have been re-defined in just a few short years.
If you haven’t done so already, reviewing your road map to retirement is a good idea. How you have thought about saving, building wealth and funding your retirement may have to change.