The objective of superannuation, as recommended by the Financial System Inquiry, is ‘to provide income in retirement to substitute or supplement the Age Pension’.
This objective, which will for the first time be enshrined in legislation under a re-elected Turnbull government, has been an important anchor for the development of the superannuation package in the 2016-17 budget.
We will make changes to the superannuation system that will provide greater flexibility, better target tax concessions, and reduce the extent to which the superannuation system can be used for tax minimisation and estate planning.
While the changes relating to the caps have received much of the media attention, I would like to highlight a number of changes that will increase the flexibility of the system and will support the accumulation of super for people with interrupted work patterns, particularly women.
From July 1 next year, people with superannuation balances of under $500,000 will have greater access to the concessional cap. They will be able to roll over their unused annual caps over five years and use them to make ‘catch up’ contributions.
From July 1, 2017 we will simplify contribution rules for older Australians by lifting restrictions, including the work test, on their ability to contribute to their superannuation and to that of their spouses.
Help for those without salary-sacrifice
Anyone under 75 will be able to claim an income tax deduction for personal superannuation contributions to an eligible fund, up to the $25,000 cap. Currently, an income tax deduction for personal superannuation contributions is only available to people who earn less than 10 per cent of their income from salary or wages. This will help the partially self-employed and those whose employers don’t offer salary-sacrificing arrangements, to have the same access to superannuation tax concessions enjoyed by the rest of the population.
We are also replacing the Low Income Superannuation Contribution, which expires on June 30 next year, with a Low Income Superannuation Tax Offset. This will mean low income workers will generally not pay more tax on superannuation contributions than on their take-home pay. Available to those earning $37,000 or less, this is expected to benefit 3.3 million people, including 2 million women in 2017-18.
We’re extending the current super spouse tax offset by increasing the income threshold from $10,800 to $37,000, to help families support each other by topping up savings.
And we will remove taxation barriers to the development of new retirement income products such as deferred lifetime annuities from July 1, 2017. This will enable retirees to buy products, such as deferred lifetime annuities that they can rely on for a particular level of income for the rest of their life. These will be of particular benefit for those who are concerned that they might outlive their superannuation fund savings.
The Turnbull government acknowledges that some of the other changes announced in the budget will reduce the very generous tax concessions for people on high incomes and with larger superannuation balances. This is appropriate, and better meets the objective of providing income in retirement to substitute or supplement the Age Pension.
It should be noted that 96 per cent of the population will either be unaffected or better off under these changes, and superannuation still remains a very attractive investment.
There are a couple of things I’d like to point out about the changes.
There will be no penalty for those who have made more than $500,000 in non-concessional contributions prior to budget night and their funds can remain in their superannuation. Only future non-concessional contributions will be restricted.
There will be no penalty for those who have already transferred more than $1.6 million into the retirement phase before July 1, 2017. Any amounts that exceed the cap can continue to be held in superannuation, in an accumulation account, where the earnings will be concessionally taxed.
I would also like to highlight that Labor is proposing changes to the taxation of superannuation as well.
Labor proposes to tax superannuation earnings in the retirement phase. Under Labor, earnings above $75,000 on superannuation balances will be subject to 15 per cent tax.
In contrast, under the Coalition, earnings in retirement phase accounts will continue to be tax-free.
The Turnbull government is committed to making the superannuation system more sustainable and flexible in the years ahead, and the superannuation changes will deliver this.
Kelly O’Dwyer is Minister for Small Business and Assistant Treasurer