12 May 2010
There were no surprises here, with the superannuation announcements confirming the Government’s response to the Henry Tax Review previously announced on 2 May 2010.

Increasing the superannuation guarantee to 12%

The Government has confirmed that it will increase the superannuation guarantee rate from 9% to 12%, with increments of 0.25% in the first two years, and 0.5% thereafter. The increase will be phased in from 1 July 2013.

What does this mean?

Superannuation remains the most tax-effective way to save for retirement and this measure will ensure that even those who are unable to make additional contributions to superannuation will benefit from a significant increase in their overall retirement savings.

Government superannuation contribution for low income earners

The Government has confirmed that individuals on adjusted taxable income up to $37,000 will have a 15% matching rate applied to concessional contributions made up to a maximum annual amount of $500.

What does this mean?

Low-income earners can have $3,333 in concessional contributions made into superannuation each year without having their benefits reduced by contributions tax as the $500 payment will offset the contributions tax payable.

A permanent increase in the concessional contribution cap to $50,000 per annum

The Government has confirmed that the transitional measure (that was due to expire on 30 June 2012) afforded to contributors aged 50 years and over should remain permanently for those with account balances less than $500,000.

What does this mean?

The Government has acknowledged that quite often it’s not until individuals are in their 50’s before they can dedicate additional savings to superannuation (when they have paid down the mortgage and they no longer have dependent children).

This will provide more certainty when projecting a retirement savings plan. It will ensure that a combined salary sacrifice and transition to retirement strategy remains an effective means of building retirement savings in the years just before retirement.

Superannuation guarantee to be provided to age 75 (up from age 70)

The Government has announced that it will raise the superannuation guarantee age limit from 70 to 75, with effect from 1 July 2013.

What does this mean?

Some equality for workers in this age group, a change that is long overdue as only now does it match the age limit for voluntary and self-employed contributions. Interestingly, around 33,000 employees are expected to benefit from this measure.

Following are new superannuation changes announced in this budget.

Permanent reduction to the co-contribution matching rate

The Government has announced that it will permanently retain the matching rate for the superannuation co-contribution at 100% and the maximum contribution that is payable on an individual’s eligible personal non-concessional superannuation contributions at $1,000.

What does this mean?

It is disappointing that what was a temporary measure has now become permanent, and at the cost of low income earners’ retirement savings.

While the benefit will no longer be as great as it once was, the co-contribution scheme still provides a great incentive to make non-concessional contributions for qualifying taxpayers.

Superannuation co-contribution — pause on the indexation of the income threshold for two years

The Government has announced that the income thresholds will remain at $31,920 and $61,920 for the 2010/11 and 2011/12 financial years. It is anticipated that this proposal will save the Government $295 million over four years. 

What does this mean?

With incomes generally expected to increase from year to year, it will be harder for taxpayers to qualify for the co-contribution. With an ageing population, this may not be the best place to look for revenue savings.

Excess contributions tax – Commissioner Discretion

The Government has announced that it will make a number of minor changes to the superannuation legislation to take effect from 1 July 2010. One of these includes providing the Commissioner of Taxation discretion for the purpose of excess contributions tax prior to an assessment being issued (as is currently the case).

What does this mean?

This proposal will provide more clarity around recourse for excess contributions for those contributing to superannuation, particularly for those close to reaching their relevant contribution caps.

Increased financial support for the Superannuation Complaints Tribunal

The Government has announced that it will increase funding to the Superannuation Complaints Tribunal (SCT) by $5.9 million over four years, commencing in the 2010/11 financial year, to ensure that the tribunal continues to meet its statutory responsibilities to resolve consumer complaints in a manner that is fair, economical, informal and quick.

What does this mean?

It is clear that the Government recognises the increasing importance of superannuation and subsequent issues that arise, particularly in relation to death benefits that the SCT increasingly have to resolve.