In the 2014 Federal Budget, the Government proposed some relatively conservative changes to Australia’s superannuation and retirement system.
Excess non-concessional contributions
The government has announced that any super contributions made by an individual that breached the non concessional (after-tax) contributions cap could be withdrawn without penalty.
The refunded earnings will be taxed at the individual’s marginal rate of tax. If an individual does not choose to exercise this choice, the excess non-concessional contributions will be subject to the excess non-concessional contribution tax at the top marginal rate.
It is yet to be determined if a timeline will exist for an individual to exercise their choice, or if a process will be used in determining how the contributions will be returned. The Government has indicated that it will be consulting with industry to finalise these details.
Changes to the age pension
The 2014 Budget has brought about a number of changes to the age pension in Australia.
Australians born after 1965 will now have to work until they are 70 before they are eligible for the age pension. No existing recipient of the aged pension would have their access reduced, effectively excluding the baby boomers from the cuts.
This change has occurred to ensure that the cost of the age pension remains sustainable and affordable, as well as being targeted to those in genuine need.
The age pension will also be linked to the consumer price index (CPI) rather than the average male weekly earnings from 1 September 2017. Other welfare benefits such as the Disability Support Pension, the carer payment and veterans’ affairs pensions will also be linked.
The CPI is typically lower than the average male weekly earnings which will mean that the value of the age pension will fall over time.
Superannuation Guarantee
The Government has announced that it will change the timetable for increasing the superannuation guarantee rate to 12 per cent.
The rate has increased from 9.25 per cent to 9.5 per cent from 1 July 2014 as currently legislated. The rate will then remain at 9.5 per cent until 30 June 2018, for a four year period, and then increase by 0.5 percentage points each year until it reaches 12 per cent.
