What does the 2016 Federal Budget mean for your super?

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In the 2016 Federal Budget, the government announced a series of reforms designed to improve the sustainability, flexibility and integrity of the superannuation system. Since then, there’s been a lot of speculation on the impact these reforms could have on Australians saving for the future. The good news is, for most Australians the impact will be neutral or positive and super remains a very attractive place to save for retirement.

Note: it’s important to remember that the measures announced in the 2016 Federal Budget are proposals only and may, or may not, become law.

Why is super still very attractive for most people?

Superannuation will remain a very tax-effective place to save for retirement for the vast majority of Australians.

Pre-tax contributions and investment earnings while you build up your super are generally taxed at the low rate of 15%, not your marginal tax rate of up to 49%¹.

When you retire, you can still transfer a generous amount into a superannuation pension, where no tax is paid on investment earnings and income payments are tax-free at age 60 and over.

Which measures are positive and why?

People who will benefit from the measures if legislation passes through parliament are summarised below:

If you…	You will…	As a result of…
Earn less than $37,000 pa	Continue to pay no tax on concessional super contributions up to certain limits	The Low Income Superannuation Tax Offset replacing the Low Income Superannuation Contribution
Have a spouse that earns less than $37,000 pa	Benefit from the Spouse Contribution Tax Offset when making super contribution on behalf of your spouse	An increase in the income threshold that applies to lower income earners receiving super contributions from their spouse
Have ‘interrupted’ work arrangements, or ‘stop-start’ income and a lower super balance	Be able to make ‘catch-up’ concessional super contributions that exceed the annual cap	The ability to rollover unused cap amounts for up to five years
Aged between 65 and 74	Be able to make super contributions regardless of whether you’re working	Removal of the ‘work test’ that applies if you want to contribute between age 65 and 74
Want to make tax deductible super contributions	Be eligible to do so regardless of your employment status	Removal of the need to earn less than 10% of income from eligible employment

What other changes are proposed?

The measures that have been introduced to ensure the super system is ‘sustainable, affordable and equitable’ will impact a small percentage of Australians, as summarised below:

Measure	Key Government statistics and insights²
Introduction of a lifetime limit of $500,000 on non-concessional super contributions	Less than 1% of fund members have made non-concessional contributions over $500,000 since 1 July 2007.
Reduction in annual concessional contribution cap from $35,000/$30,000 (depending on age) to $25,000	The median Australian worker currently makes annual concessional contributions of around $4,500 per year. In 2017/18, the lower cap will impact about 3% of super fund members. Those to be affected will have average incomes of around $210,000 and average super balances of around $760,000.
Reduction in income threshold above which individuals will be required to pay an additional 15% tax on concessional super contributions from $300,000 to $250,000	In 2017/18, approximately 1% of fund members are expected to pay additional contributions tax as a result of this measure. These individuals will have an average taxable income of $266,000 and an average super balance of $535,000.
Introduction of a lifetime limit of $1.6m on the amount of super that can be transferred into ‘retirement phase’ accounts	This measure will affect less than 1% of Australians with a super account. The average super balance of a 60-year-old Australian nearing retirement is $285,000.

The information above has been prepared based on the announcements made by the Government in its Budget on 3 May 2016.

Find out more

For more information on the changes announced in the Budget, download our full Federal Budget Analysis. To find out more about how the changes could impact you, speak with us today on (02) 8083 1500.

Important information and disclaimer

Sources:

¹Includes Medicare levy and the Temporary Budget Repair Levy of 2% on taxable income exceeding $180,000.

² Budget 2016 Super Facts Sheets

The information contained in this article is current as at 20 May 2016 and is prepared by MLC Technical, part of GWM Adviser Services Limited ABN 96 002 071749, registered office 150-153 Miller Street North Sydney NSW 2060, a member of the National Australia Bank Group of Companies.

Any advice in this article has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on any advice, consider whether it is appropriate to your objectives, financial situation and needs.

Past performance is not a reliable indicator of future performance.

Before acquiring a financial product, you should obtain a Product Disclosure Statement (PDS) relating to that product and consider the contents of the PDS before making a decision about whether to acquire the product.

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