The Federal Budget for 2018/19, released on 8 May 2018, focused on reducing taxes for lower and middle income earners, lowering the budget deficit, and protecting your superannuation.
2018 superannuation proposals
Here are some of the key Budget announcements relating to your super. Please note that each of these proposals will only become legislated if passed by Parliament.
Lower super fees
It’s important to ensure super is not eroded by fees. From 1 July 2019:
- Exit fees will be banned on all super accounts. If you're making a full rollover, you won’t be charged an exit fee. MyLife MySuper fully supports this change, and we’re looking to implement this as soon as possible, before 1 July next year.
- Protection will be provided to super accounts with balances below $6,000 by limiting some fees to a 3% annual cap.
Opt into insurance through super
With many super funds, insurance is offered automatically. So those members are protected financially, but insurance premiums are also deducted from their super account. To protect the retirement savings of young people and members with a low balance, it’s proposed that from 1 July 2019 members will need to opt in for insurance if they either:
- have a balance less than $6,000, or
- have an account which has not received a contribution in 13 months and are considered inactive, or
- are new members under age 25.
Making it easier to find inactive super
Any inactive super is transferred to the ATO, so that it’s easier to find and group it into your other super accounts when you contact the ATO or submit a tax return. From 1 July 2019, inactive accounts (i.e. accounts which haven’t received a contribution in 13 months) with a balance under $6,000 will need to be transferred to the ATO. They will focus on returning inactive super to active accounts held by members.
Work test exemption for retirees
Often, people want to put more money into super as they head into retirement, but they’re restricted by the work test (i.e. they must have worked at least 40 hours in 30 consecutive days). Starting 1 July 2019, a one year exemption from the work test is proposed to apply to older Australians who have less than $300,000 in total super savings. This exemption will apply to the financial year following the last year the work test was satisfied. This will give more time for eligible members to contribute to their super.
New means testing rules for certain pensions
Some older Australians may run the risk of outliving their savings. To avoid this, new age pension means testing rules are proposed to be introduced from 1 July 2019. Under the new rules, only 60% of the amount initially invested in these ‘lifetime income stream’ accounts will be assessed under the assets test. This will apply until the account holder is 84, or for a minimum of five years. After this time, only 30% will be assessed for the rest of the person’s life. Also, only 60% of the income payments will be assessed under the income test. At this stage, it’s unclear exactly which income streams will be impacted and how pensions will change.
Legislated super changes post 1 July 2018
The following proposals from the Federal Budget for 2017/18 have now been legislated.
Selling your home when you retire
Eligible members aged 65 or older can make super contributions of up to $300,000 (or $600,000 per couple) within 90 days of settlement when selling their home. The home must have been owned for at least 10 years, and must have been their main residence at some point during that time. These contributions, known as ‘downsizer contributions’, can be made without having to meet a work test or total super balance test, and they don’t count towards the contribution caps.
Catch-up concessional contributions
Your employer is required to pay 9.5% of your income to your super account as Superannuation Guarantee (SG) contributions. Employer and salary sacrifice contributions are referred to as ‘concessional contributions’. If your concessional contributions exceed the (current) $25,000 per year cap you will be taxed extra on the amount over that cap. Where the annual concessional contribution cap hasn’t been reached, eligible members can accrue the unused amounts (between the cap and the total of your concessional contributions) for use in subsequent financial years. These unused cap amounts can be accrued for up to five financial years, and 2019/20 is the first financial year it will be possible to use these carried-forward amounts.
To be eligible, individuals cannot have a total super balance exceeding $500,000 on 30 June in the previous financial year. This measure could help those with interrupted work patterns and competing financial commitments to better utilise the concessional contributions cap. It could also help to manage tax and get more money into super when selling assets that result in a capital gain.
Saving for your first home using your super
The First Home Super Saver Scheme (FHSSS) allows eligible first home buyers to save a deposit by contributing up to $30,000 (maximum of $15,000 per year). Members who have made super contributions under the Scheme can access their money from 1 July 2018. An online estimator is available to explore the potential benefits of using the FHSSS.
We recommend our members always seek financial advice before taking any action. Our MyLife MyAdvice financial planners can guide you through any required changes.
If you want to know more about the Federal Budget, please visit budget.gov.au.
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