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Government passes ‘fairer’ super changes

The Australian Government has recently passed what it is calling the ‘most significant superannuation reforms in a decade’.

The reforms include the introduction of a $1.6 million transfer balance cap, which places a limit on the amount an individual can transfer into the tax-free earnings retirement phase and the introduction of the Low Income Superannuation Tax Offset, which is expected to boost the retirement incomes of around 3.1 million low income earners.

Under the confirmed changes, which will come into effect on 1 July 2017, the cap on concessional (before-tax) contributions will be decreased from $30,000 (for those under the age of 50) or $35,000 (for those aged 50 years old and over) to the flat rate of $25,000 per year.

From 1 July 2018, individuals with less than $500,000 in their superannuation accounts will also be allowed to make ‘catch-up’ concessional contributions. This is designed to help those with broken work patterns – many of whom are women – better save for their retirement. Previously, this option did not exist for those who had left the workforce.

The tax rate of 15 per cent for those who earn up to $300,000 and 30 per cent for those who earn income above that amount has also been changed. The new income threshold at which the higher tax rate will start will be $250,000.

The overall changes to concessional contributions are designed to level the playing field and provide more Australians with the opportunity to make full use of their concessional contributions cap.

The new annual cap for non-concessional (after-tax) contributions will be reduced from $180,000 to $100,000, and a new lifetime cap of $1.6 million will be introduced. Individuals under the age of 65 will be able to bring-forward three years of contributions.

The tax offset for spouse contributions will be allowed where the spouse’s annual income is less than $40,000. Previously, this offset was only allowed where the recipient’s income was less than $10,800.

After 1 July 2017, the tax-free transfer limit for a fund in pension phase will change to $1.6 million. Earnings will also be tax-free for those with balances of up to $1.6 million and balances above the $1.6 million mark will be taxed at 15 per cent.

The removal of the ‘10 per cent rule’ will also help ensure a level playing field for access to superannuation tax concessions irrespective of a person’s employment situation. According to the Government, this will be of particular help to contractors who also draw income from salary and wages.

Posted on 29 November '16 by , under Super.

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Superfund categories and what they mean

There are four different categories of super funds. These have different primary features and are more applicable to certain people than they are to others.

Retail super funds

Anyone can join retail funds. They are mostly run by banks and investment companies:

  • Allow for a wide range of investment options.
  • Financial advisors may recommend this type of fund as they receive commissions or might get paid fees for them.
  • Although they usually range from medium to high cost, there may be low-cost alternatives.
  • The companies that own these funds will aim to keep some of the profit they yield

Industry super funds

Anyone can join bigger industry funds, but smaller ones may only be open to people in certain industries i.e. health.

  • Most are accumulation funds but some older ones may have defined benefit members
  • Range from low to medium cost
  • Not-for-profit, so all profits are put back into the fund

Public sector super funds

Only available for government employees

  • Employers contribute more than the 9.5% minimum
  • Modest range of investment choices
  • Newer members are usually in an accumulation fund, but many of the long-term members have defined benefits
  • Low fees
  • Profits are put back into the fund

Corporate super funds

Arranged by employers for employees. Large companies may operate corporate funds under the board of trustees. Some corporate funds are operated by retail or industry funds, but availability is restricted to employees

  • If managed by bigger fund, wide range of investment options
  • Older funds have defined benefits, but most are accumulation funds
  • Low to medium costs for large employers, could be high cost for small employers

Self-managed super funds

Private super fund you manage yourself. Many more nuances to this type of fund. Most prominent feature is the autonomy over investment.

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