Households and super fund members will be relieved with a few valuable wins in this year’s Federal Budget that will help boost cash flow and reduce complexity in the super system.
They also help baby boomer women in particular – here’s why.
The 2019 Budget includes a doubling of the low- and middle-income tax offset announced in the 2018 budget.
The maximum offset of $1080 is payable in just a few months to individuals earning between $48,000 and $90,000. This is expected to benefit 4.5 million taxpayers and given an average annual wage for women of about $75,000 – many of these will be women.
If your income is outside this bracket, don’t stress!
Although the offset gets smaller if your income is above $90,000 you still get something right up until an income level of $126,000.
And if you earn below $48,000 you will still be eligible for a tax offset up to $225. It’s an individual taxpayer benefit, so that means if you’re a two-income family you may be eligible for up to $2160.
The government hopes this benefit will give households a bit more spending money and in turn provide a boost to the economy. This is good news for the economy struggling under a slowing residential property sector.
But that doesn’t mean you shouldn’t think carefully about how you spend the money.
Firstly, you could use it to pay down debts, and if that is out of the way, you might consider using the extra payment to help boost your long term savings via super.
The Budget also contained a renewed focus on removing barriers for underperforming super funds to merge and protecting super fund members with low balances or who are under 25, from insurance premiums eating away their balance.
The Productivity Commission’s extensive review into super found that the impact from automatic insurance in super eroding balances, was higher for those with lower incomes (including women, because of their lower average earnings).
It suggested significant reforms to improve the system for members and these changes are a good start.
The big win for super is three proposals aimed at removing some of the red tape faced by super fund members aged 65 and older.
These barriers have created extra hoops that people need to jump through before they can add money to super, so no surprise are quite unpopular for people trying to build their nest egg at retirement.
One of these areas is removing the requirement that people aged 65 and 66 years of age need to undertake a work test before making contributions to super.
It’s not scheduled to start until July 1, 2020, but if passed, would help when people in this age group who stop work unexpectedly, perhaps due to a change in health condition or lack of work and haven’t yet been able to sort all their super plans out.
Another area was the announcement that people aged 65 and 66 would be able to use the “bring-forward” contribution rule which allows them to put in up to three years worth of non-concessional super contributions in one year.
This is currently available to savers aged under 65 and will greatly assist people who may have faced delays in selling an investment property or other lumpy asset, to add that money into super.
Importantly, this change would also help couples to be able to restructure their super so that it is more evenly split between both individuals.
Currently it is not uncommon for female baby boomers to reach retirement with a significantly lower super balance than their male counterparts due to historical systemic barriers.
Lastly, the eligibility age for the valuable spouse contribution tax offset is to be extended up to age 74. This measure is popular with couples wanting to boost their super balance when one member of the couple is working part time or is a lower income earner.
Baby boomer women in particular who return to part-time or casual work after the kids have left home may want to look at this concession. It requires a $3000 contribution to be made to your super account, but if your income is below $37,000 this allows your spouse to get a tax offset of up to $540 – representing an 18% benefit.
Currently, the tax benefit is not available if you are older than 69, even if you meet all the other conditions. This rule change will bring the age limit up to date with most of the other super contribution rules which allow contributions up to age 74 (pending other conditions are met).
These super changes don’t mean people are getting a free kick to put lots of extra money into super. The big super reforms introduced in 2017 mean people are now limited to adding to super if they have a big balance ($1.6 million or more).
Because that overall limit is in place, there really is no need for people to jump through additional hoops as well. Reducing red tape removes some of the complexity in the super system, and if that makes it easier for us to make our money last in retirement – that can only be a good thing!