Another year, another budget …
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In light of the current financial climate, the 2009-10 Federal Budget outlined some key proposals impacting superannuation. Not surprisingly, the changes announced stem from an overall tightening of the budget, with the aim to save the government $4.2 billion over the next four years. The major amendments to superannuation include:
- the reduction of the concessional contribution cap from $50,000 to $25,000 p.a.; and
- the temporary reduction of the Government co-contribution scheme.
Whether these changes affect your super depends on a variety of factors. These include:
- how much you contribute to your super investment;
- your age;
- whether you make contributions before or after-tax; and
- your annual income.
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Reduction in the concessional contribution cap
Effective 1 July 2009, the Government reduced the concessional (before-tax) contribution cap from $50,000 to $25,000 p.a. (indexed to AWOTE in increments of $5,000). This means that you can now contribute only $25,000 to your superannuation fund before you incur a higher rate of tax.
The transitional cap available until 2012 for those aged 50 years and over, will also be reduced from $100,000 to $50,000 (not indexed) for concessional contributions.
What does this mean for you?
The Government anticipates just two per cent of Australians will be affected. For many, the reduction in the caps will have no impact as it largely focuses on those making high salary sacrifice contributions.
For example, if you are receiving nine per cent Superannuation Guarantee contributions and you are making five per cent voluntary before-tax contributions to your super, then you would have to be earning over $175,000 p.a. to exceed the new before-tax contribution cap.1 You should also be aware that any insurance premiums or administration fees your employer pays or may pay on your behalf will count towards the cap. As a result, you could potentially be affected by this change if you intend to make large before-tax contributions in anticipation of your retirement. Please speak to your HR or Payroll department to see if you will be affected by this.
Government co-contribution temporarily reduced
Another change introduced in this year’s budget is the temporary reduction of the Government’s co-contribution.
The co-contribution is designed to boost your retirement savings. If you earn up to $61,920 per year, and make after-tax contributions (which are also known as non-concessional contributions) to your super, the Government will contribute up to a certain limit.
The amount the Government will match to your contribution has changed. As of 1 July 2009, for every after-tax dollar you contribute to super the Government will contribute $1.00 up to a maximum of $1,000 p.a. The maximum co-contribution of $1,000 may be payable if your income is less than $31,920 p.a. or less. The Government co-contribution reduces at higher income levels and cuts out completely when your assessable income (plus reportable fringe benefits) reaches $61,920. Over time, the Government will increase the amount they co-contribute, and by 2014 aim to again contribute up to $1.50 for every after-tax dollar you contribute to your super account.
An important point to note is that from 1 July 2009, salary sacrifice contributions will be included as part of your income when determining eligibility for the co-contribution payment. This change may impact whether you’re still able to receive future co-contribution payments.
What does this mean for you?
If you don’t intend to make any after-tax payments to your super account, then this change won’t affect you. However, if you make an after-tax contribution, the Government may still give you up to $1 for every $1 you contribute after-tax. If you earn less than $61,920, this still remains as a potentially great way to boost your super savings.
To find out about other ways you may be able to boost your super savings, why not consider enlisting the help of an expert through Momentum Financial Advice. This service offers an initial consultation with a qualified financial adviser, at no cost to you*. You can either discuss your situation over the phone or attend a face-to-face appointment.
For more information on the Momentum Financial Advice service, contact a Member Services Consultant on 1300 55 7586 who can put you in touch with a financial adviser directly.
In a snapshot, other Federal Budget 2009-10 changes which may impact your superannuation and plans for retirement are:
The age pension age will be increased gradually to 67 years of age.
The age at which people can apply for the Government Age Pension and Commonwealth Seniors Health Card is to rise by increments of six months from 65 to 67. This change will be rolled out gradually and is planned to commence in 2017.
Superannuation funds will be required to transfer lost and inactive superannuation accounts with balances less than $200 to the ATO.
This measure aims to reduce the amount of lost accounts (approximately three million) by 40 per cent. You will be able to access these funds directly through the Australian Tax Office.
The minimum drawdown amount for account-based pensions will be halved for the 2009/10 income year.
To combat the negative impact the financial crisis has had on superannuation pensions, and to help those affected avoid having to sell assets, the Government has reduced the minimum drawdown requirement by half. The exact amount required to be drawn continues to be dependent on age. |
For more information about these changes, and how they may affect your investment and retirement plans, please contact please contact a Plum Member Services Consultant on 1300 55 7586, any business day, 8.00am to 6.00pm, Australian Eastern Standard Time (AEST)
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