A lot of the recent changes affect contribution into super. So it is important to outline from the start what those contributions for super can be. On the outset we have:
These are concessional contributions or after-tax contributions. Before-tax contributions are contributions paid into super by your employer and include the superannuation guarantee or SG and any other contributions by your employer is making into your super account on top of the superannuation guarantee contribution.
It also includes any salary sacrifice contributions you are making. All the mentioned contributions count towards a contribution limit.
Now the contribution limit depends on how old you are. If you are turning 50 this financial year, you have a contribution limit of over $35,000.
If you're under the age of 50, that contribution limit is 30,000. So what this means is as an employer puts contribution for you into super, they are taxed up to 15% - up to these contribution limits.
So if I was over the age of 50 and my employer put $50,000 into super for me, the first $35,000 will be taxed up to 15% while the balance (the $15,000) will then be taxed at a marginal rate.
The government has some concessions – hence termed "concessional contributions" up until the concessional limits.
From July this year, the limits drop to $25,000, regardless of age. The government has dropped the amount of contribution efficiently due to super and are eligible for the concessional tax. So simply put before tax, employer contributions and salary-sacrifice, taxed at 15% up to those limits and anything on those limits taxed at a marginal rate.
With these contributions your own money you're putting into super from your bank account, the government don't care about how it got in there. They will assume you paid the right amount of interest to get up there whether it's earning or inheritance – whatever. So they are not taxed into super.
So if you put the right amount of dollars into super, they are not taxed, again – only at a threshold. Now that threshold is a $180,000 per year (in this financial year) or $540,000 in this financial year if you're under the age of 65.
So the government allows for what they call a 3-year bring forward rule. So 180,000 by three is the $540,000. So this financial year, you can put in 540,000 under the age of 65, and none of it will be taxed.
If you go above the $540,000 in one year, and you're over the age of 65, you're going to be taxed at the top marginal rate.
Now again from July of this year, that contribution limit is going to drop. It's going to drop from a $180,000, down to $100,000. The three-year bring it forward rule still apply, but three times the $100,000 is $300,000.
So there are opportunities this financial year to get contributions into super either before or after-tax at higher levels as would be made available from July this year.
Now the other thing about contributions to super is the age 65. If you're over the age of 65, you cannot make after-tax contributions into super unless you meet what the government calls a work test. Now the work test says you must work at least 40 hours over any consecutive days in the financial year.
If you pass that test, you can make contributions into super at the age of 65, but you cannot make after-tax contributions after the age of 75.
There are no age restrictions for before-tax contributions into super. Another thing to note is from July; the government says you cannot make after-tax contributions into super regardless of your age if your super balance exceeds 1.6 million.
The 1.6 million is the amount that the government is deemed to be the cap of what you can move from your super fund into a retirement income account. Your retirement income account is a superannuation pension – a superannuation income stream.
It's a super product a fund provides that gives you an income in the form of a pension. So the government's going to provide a 1.6 million cap off what's there. So it's a cap of what you transfer. You can have more money in superannuation than 1.6 million but can only transfer up to 1.6 million into this retirement income account – into the pension account from super.
So you might have $3 million in super, but the amount that moves across and comes down as an income stream from super is $1.6 million – the other $1.4 million has to stay in your superannuation account.
Some people may be in a defined benefit pension fund. A defined benefit pension fund provides a defined benefit pension over the number of years in your retirement. The government is still working with us to give details on how the lump sum value of your defined benefit pension will be calculated.
So we suggest that you contact your defined benefit pension fund for more details about how the government is progressing at this calculation.
The LISTO (Low Income Super Tax Offset) is working with the government in working out the details of what retirement phase is.
Now retirement phase is where the $1.6 million kicks in. You cannot add more than $1.6 million in your retirement account when in retirement phase. At the moment, to get money out of super, you have to reach the preservation age or reach a condition of release. You must meet both requirements to be allowed access to your super.
Here’s more information about the condition of release in superannuation - Under what Circumstances can one withdraw their Superannuation Funds - A Full Guide
Another condition of release is turning the age of 65. We haven't seen in the draft legislation yet whether turning 65 takes us into retirement phase. We're still waiting on details around that.
As the legislation stands at the moment, you can have more than $1.6 million in a retirement income account if you're not in retirement phase. So you can have more than $1.6 million in your transition-to-retirement strategy if you're not in retirement phase.
The government has also increased the super tax offset for spouse contributions. Now spouse contributions are money that a spouse pays into the superannuation account of their spouse. They're eligible for tax offset if the spouse earns less than $10,800 and the offset is 18% of what the contribution.
So if $37,000 goes in, and 18% offset is available to the person contributing, you are eligible for $1,800 tax offset. As your spouse' income increases at about $10,800, that offset gradually reduces and cuts out completely at $13,800.
Come July this year; the lower threshold is going to be $37,000 and not cut out to $40,000.
How will Superannuation Change in 2018
The significant changes that may affect Aussies are those that may want to downsize their homes. This poses two different issues for politicians. One is what we're going to do about first home buyers (how we're going to free out more properties for families, retirees, etc.) and it also targets those who are contributing to superannuation who may not be able to otherwise.
What it allows is that if you are over the age of 65, you can downsize (or upsize) sell a residential property and put $300,000 into superannuation.
People over 65 won't be able to contribute to super under normal circumstances, and if they're over 75 they can't contribute at all – it doesn't matter which criteria they might meet. But now you can suddenly contribute those funds into super which is very attractive.
If you're a couple, you can contribute $600,000, and we know super is concessionally taxed relative to almost any other forms investments. $600,000 for a couple that they can use from the proceeds of this sale from their home is quite attractive.
It's important to remember though not to enter a contract of sale until the 1st of July 2018, if you do it before that, it won't be captured by this motion.
Consider also what other things it might affect if you're putting that money into super. It becomes apparent that it is targeted towards individuals who are not currently eligible for the age pension. That money that you have freed up is still assessable for security purposes.
So if are eligible for an age pension and you freed up $600,000 in the capital, you no longer get the pension because you'll be over the assets test and so it's aimed at those who are wealthier.
More Say in Newest Super Changes
The change in headline introduces AGMs (annual general meetings) for super funds. Before, these were not common because they're with companies. The government suggests that these meetings will aid fund members to hold super fund executives and trustees to account.
But loads of us hardly glance at our super account balances when the 6-monthly statement is in our inbox. Thus, it is reasonable to state: of the 15 million or so super fund members in Australia, a tiny portion are expected to go to a yearly meeting.
Why would we, though? One reason is that shareholders attend recorded company AGMs so that they can vote on director appointments and manager remuneration. On the other hand, super funds are trusts and not public companies, and members will not have equal rights even though they attend.
Instead, these AGMs will provide members with the opportunity to quiz the executives, actuary, and auditor, yet without votes on material choices. Therefore, this is not new: super fund members have nearly no influence over their trustee appointments, remuneration of executive or other choices.
Even the fund trustees of the industry, who are representatives of super fund member organizations (like trade unions), aren't usually designated by fund members yet are chosen by their supporting organizations.
If members are consigned to biscuits and tea with the chairman of the fund, then where's the consumer "power" in Minister Kelly O'Dwyer's Financial Services reforms? It remains mostly with the regulator, the APRA (Australian Prudential Regulation Authority).
The key changes aim to provide APRA with more responsibility for keeping the interests of super fund members. This is mainly about MySuper – the regular default super product.
As super is mandatory for the majority of employees, the system captures numerous people who do not have the skill or the will to decide on what fund holds their savings. This takes in choices on where the savings ought to be invested, as well as what degree of life insurance they take. Passive members do not just "shop around" for providers, to their cost.
After Cooper Review's paternalistic reasoning, successive governments have driven passive super fund members into the MySuper options. And MySuper products should have one diversified investment strategy, are permitted to charge only limited payments and should provide a standard default life insurance as well as total and permanent disability insurance.
Moreover, MySuper funds have to present their investment performance and goals on a dashboard that's supposed to aid people to make comparisons between comparable products. Workers should select a super default fund for their workers from the list of products by MySuper.
Even so, MySuper investment performance and product fees differ very widely. The 2017 APRA quarterly super statistics report that, in 2015, following MySuper was up and running, yearly payments and expenses on a $50,000 account balance in MySuper products ranged between $265 annually and $1085 annually (with a $520 annually median).
MySuper products' investment performance varies considerably as well. In that same year, the gross of expenses (mean yearly investment return) for single-strategy products was 8.45%; next, the bottom 10% got below a 5.5% return; lastly, the top 10% got over 10.9%.
While a few variations in returns are because of intentional differences in the default investment products' design, a few are related to variances in manager efficiency or skill.
If passed into law, these newest reforms will mean that APRA can cancel or refuse a MySuper authority, at a low threshold. If APRA believes that a super entity that provides a MySuper product could not meet its obligations, then that are grounds to cancel or refuse an authority. Because the default super sector is enormous, such a choice would be very expensive to the fund being considered.
Under this rule, MySuper fund trustees will be compelled to note their yearly report card. Annually, trustees will need to evaluate the options, facilities, and benefits provided to their members as well as the investment strategy (return and target risk). Moreover, trustees will be obligated to report on the members' insurance strategy, including whether insurance payments are reducing balances; and to assess whether the fund is adequately large to do these at a sensible cost.
In every case, trustees are obliged to demonstrate that they're promoting the financial interests of their members. They will need to compare their MySuper product's performance to that of such.
Even if the trustees score their card, APRA will assess these as well, under the risk that MySuper authority may be canceled. It isn't the amount of discipline these rules can execute on trustees, yet there are a few obstacles to the implementation and a few possible unintentional consequences.
The majority of super funds know little concerning their members. Frequently, these funds collect the member's age, gender, some income indication, and at times their postcode. To demonstrate that a financial service, insurance product or investment promotes (or otherwise) a member's financial interest will be tough for this little information.
For instance, two 25-year-old males in the same job will have different requirements for life cover if one is single while the other has a child and a non-wage-earner spouse. However, they'll appear the same to the trustees.
Furthermore, having a yearly peer investment performance comparison by MySuper trustees will center on temporary results instead of the long-horizon results required for a secure retirement.
Therefore, the claim of the government that these variations will provide consumers with more power, as well as strengthen regulation of this sector is extending the truth.
Proposed Changes - Federal Budget 2017-2018
Major changes to superannuation began on July 1, 2017; the changes are presented here.
Proposed changes to 2017-2018 super were declared in the Federal budget on May 9, 2017. Note that a few of the proposed changes are yet to be passed. The proposed changes declared include:
Permitting first-time home buyers to create a deposit within super
The government offered first-time home buyers to create a deposit in super by permitting voluntary annual contributions of up to $15,000 as well as a total of $30,000 to the super account. Such contributions will attract before-tax tax treatment under "First Home Super Saver Scheme."
More on buying property with Superannuation in this article – How to Buy Property with Super
Permitting older individuals to pay downsizing proceeds into super
From July 1, 2018, people over 65 years old will be able to pay an after-tax contribution of up to $300,000 from a principal residence's sale, held for no less than ten years, into their super. These contributions will then be included in any other voluntary contributions that Australians make under the current contribution legislation and before-tax and after-tax caps.
Merging of the super-complaints tribunal as well as other monetary complaint services into one complaints authority
The government has planned integrating the Super Complaints Tribunal along with the Credit and Investment Ombudsman and the Financial Ombudsman Service into one Financial Complaints Authority. The new agency will handle all financial disputes, such as super, and offer binding dispute resolution, as well as will be financed by industry.
On July 14, 2017, the Government declared that they'd seek to close a loophole that permits employers to short-change workers who make additional salary sacrifice contributions.
The declaration is a step that demonstrates progress is made to deal with widespread SG non-compliance, but a comprehensive method is required given that the changes in salary sacrifice will help 10% of people affected by unpaid super.
The government is presenting a raft of alterations to the superannuation regulation to provide consumers with more power over retirement funds. However consumers are, in fact, unlikely to utilize these powers and the new ruling might not enhance superannuation fund performance.
Availability and Quality of Super Information
Super Fund associations mostly believe that there are many financial pieces of advice for Australians.
But the majority of them don't choose to use it and don't see any value in spending time or money for such information. This has been the case for those with lower income, who could have benefited from such advice if they only sacrifice a little time and amount for it.
Superannuation fund associations recognize that the majority of people simply manage the immediate financial affairs with insufficient planning for the future. The superannuation guarantee offers a knowledge base during retirement but may prove to be inadequate in many cases regarding retirement. There is concern that people invest in and begin to focus on superannuation at a time which is late and deemed insufficient in building up enough super for retirement.
Report from the Superfund Associations
Superfund associations have reported there isn't necessarily any need for more information, but only for present information to be better in addressing consumer needs.
Superfund associations felt it was crucial for the advice to be accessible to users and be provided in a way that is cost-effective, clearly communicated and presented in different formats with the aid of personal and telephone communication, and the use of online tools like calculators that is applicable to various kinds of members and levels of engagement within the system.
There are sense and degree of cynicism on financial advisors from consumers who are assumed to come from the media. Consumers are concerned that the financial advisers are not acting in their best interest, and they may lose more money due to the lack of support regardless of the advice they are getting.
Disclaimer: All information on this website is of a general nature only. We have not taken into account your financial situation, needs or objectives. You need to make up your own mind and ascertain yourself if it is right for you. We recommend you read the product disclosure statement(s) and the financial services guide before making any financial decision.