The Government has proposed some relatively conservative changes to Australia’s superannuation and retirement system in this year’s Federal Budget.
Superannuation contribution caps
One of the more interesting developments is the indexation of contribution caps from 1 July 2014. Regular indexation of the caps was legislated seven years ago; however it had been frozen in recent years.
Excess non-concessional contributions
The Budget now allows individuals who inadvertently exceed the non-concessional contribution cap to withdraw the excess contributions together with any earnings on those contributions.
The refunded earnings will be taxed at the individual’s marginal rate of tax. Any withdrawal of the excess non-concessional contributions will not attract a penalty tax.
If an individual does not choose to exercise this choice, the excess non-concessional contributions will be subject to the excess non-concessional contribution tax at the top marginal rate.
It is yet to be determined if a timeline will exist for the individual to exercise their choice, or if a process will be used in determining how the contributions will be returned. The Government has indicated that it will be consulting with industry to finalise these details.
The Government has announced that it will change the timetable for increasing the superannuation guarantee rate to 12 per cent as part of the proposed repeal of the Mineral Resource Rent Tax.
The rate will increase from 9.25 per cent to 9.5 per cent from 1 July 2014 as currently legislated. The rate will then remain at 9.5 per cent until 30 June 2018, for a four year period, and then increase by 0.5 percentage points each year until it reaches 12 per cent (01/07/22).
Increase in age pension
The qualifying age for the pension will increase to 70 by the year 2035. This means that Australians born after 1 July 1958 will have to work until they are 70 before they are eligible for the age pension.
This increase has occurred in an attempt to ensure that the age pension remains sustainable and affordable, as well as being targeted to those in genuine need.
No existing recipient of the aged pension would have their access reduced, effectively excluding the baby boomers from the changes.