Budget Changes You Need to Know About Super

At 7.30pm on Tuesday, 3 May 2016, Treasurer Scott Morrison handed down his first Federal Budget.

Economic stability and fairness is what the Government had been leading with for the 2016/17 Federal Budget, with speculated changes to superannuation featuring heavily in the preceding weeks.

So how has stability and fairness been translated in Mr Morrison's proposed changes to the super system?

We've outlined the eight changes we think you need to know about super and VicSuper Senior Financial Planner, Scott Middleton, sheds some light on what they might mean for members.

Note: The following proposals still need to be legislated. However, Parliament has been dissolved until after the Federal election on Saturday, 2 July 2016.


1. Non-Concessional Contributions Lifetime Cap

What's the change?

The Government will replace the existing non-concessional contributions cap, which allows non-concessional contributions of up to $180,000 per year, with a $500,000 lifetime non-concessional contributions cap.

The new Lifetime Cap will take into account all non-concessional contributions made on or after 1 July 2007.

Contributions made before 1 July 2007 will not result in an excess. However, excess contributions made after commencement will need to be removed or subject to penalty tax.

The cap will be indexed to average weekly ordinary time earnings in $50,000 increments.

What it means for members

While this change has an immediate start date (ie from Budget night), it still needs to be passed by the Government before it becomes effective.

Scott Middleton says: "We would encourage anyone who is likely to be impacted by this change to come and see a Financial Planner.

"It's important for all members to have the right strategies in place for their situation, but it becomes increasingly important the closer a member is to retirement."


Proposed effective 1 July 2017

2. Concessional Contributions Cap

What's the change?

The Government will change the concessional cap on pre-tax superannuation contributions.

The current cap that applies to pre-tax super contributions is $30,000 per annum for under 50s, and $35,000 per year for those aged 50 or over.

Under the Government's Federal Budget proposal, the cap will be reduced to $25,000 per annum irrespective of age.

What it means for members

These changes are most likely to have an impact on those who are contributing heavily to super as they near retirement age.

Scott Middleton says: "It's important to remember that even if the changes are passed as legislation, the concept of superannuation doesn't change. It remains an extremely tax-effective investment and savings vehicle and offers a number of other benefits not necessarily available through other investment channels, particularly for those approaching retirement.

"For those further from retirement, it highlights the benefits of adding that little bit extra early on to get ahead.

"We would certainly urge anyone who's concerned about these changes and considering their options to seek professional advice before making any adjustments to their strategy."

3. No Work Test for People Aged Under 75

What's the change?

People aged 65 to 75 will no longer have to satisfy a work test in order to make contributions to super.

What it means for members

Scott Middleton says: "Removing the work test for people under 75 will allow older Australians, even those who have ceased working, to increase their retirement savings in the super environment where they may not have been able to do so before."

4. Low Income Super Tax Offset (LISTO)

What's the change?

A Low Income Superannuation Tax Offset (maximum $500) will replace the Low Income Superannuation Contribution (LISC) for people with an adjusted taxable income up to $37,000 that have had a concessional contribution made on their behalf.

What it means for members

Scott Middleton says: "This is a great result for lower income earners. It's designed to help them avoid being in a situation where they might pay more tax on their savings within super than on income earned outside of super."

5. Spouse Tax Offset Threshold Increase for Spouse Contributions

What's the change?

The Government will increase access to the low income spouse superannuation tax offset.

The annual income threshold will be raised for the low income spouse from the current $10,800 to a proposed $37,000 (with a reducing tax offset applying between $37,000 and $40,000).

What it means for members

Scott Middleton says: "Flexible and part time work arrangements are becoming increasingly more common, particularly with parents returning to work following a period of leave, but also with older people who are choosing to work in part-time capacities instead of retiring or as they transition.

"This change really opens up opportunities for couples to ensure the retirement savings of both parties are looked after."

6. Catch-up Contributions (Balance under $500k)

What's the change?

The Government has proposed to allow individuals, who have a super balance less than $500,000, to accrue additional concessional contributions cap amounts if they have not reached their annual $25,000 concessional contributions cap (see 2.Concessional Contributions Cap ) in previous years.

Unused cap amounts will be carried forward on a rolling basis for a period of five consecutive years (starting from 1 July 2017).

The proposal also extends to members of defined benefit schemes.

What it means for members

Scott Middleton says: "Without this change the annual concessional caps would have the potential to limit the ability of people who have had interruptions to their work patterns or breaks from the workforce to ‘keep up' with those who haven't.

"This change essentially gives people an opportunity to catch up without being penalised or caught out by the concessional contributions cap if they have the funds to do so."

7. Concessional Contributions Tax Thresholds

What's the change?

The Federal Budget also included plans to cut down on tax concessions available to higher income earners.

Currently, people earning over $300,000 are taxed at 30% on pre-tax contributions.

The Government is now proposing to reduce this threshold to people earning $250,000 and over.

The proposal also extends to members of defined benefit schemes.

What it means for members

All pre-tax super contributions for those earning under $250,000 will still be taxed 15% in the super system. The change will only impact those earning $250,000 or more. For these people, an additional 15% will apply to concessional contributions.

Scott Middleton says: "People should not be put off the idea of super because of this change.

"Even if you are a higher income earner, the 30% tax rate that applies above the new threshold is still much, much lower than the Marginal Tax Rate of (up to 45%) that would apply to those earnings if they were outside of the superannuation system."

8. $1.6m Super Transfer Balance Cap

What's the change?

From 1 July 2017, the Government has proposed to introduce a transfer balance cap of $1.6 million on the total amount a person can transfer from superannuation into the retirement phase. Subsequent earnings on these balances in retirement phase will not be counted towards the cap.

The cap will be indexed to consumer price index in $100,000 increments.

People who already have more than $1.6 million in a pension account must transfer the excess amount into an accumulation super account or with draw it by 1 July 2017.

To replicate this for members of defined benefit schemes, the Government has proposed to tax pension payments over $100,000 at the individual's marginal tax rates for unfunded defined benefit schemes 9however the 10% tax offset will be capped at $10,000) and 50% of pension payments over $100,000 will be taxed at the individual's marginal tax rates for funded defined benefit schemes.

What it means for members

People who already have more than $1.6 million will be able to transfer the excess amount into an accumulation super account.

Scott Middleton says: "Again, I would urge anyone who is likely to be affected by this change to come in and get professional advice or for a review of their current strategy.

"An appointment only takes around an hour, and in most cases, for members there is no additional cost."

9. Removal of Anti-Detriment Payments

What's the change?

Superannuation funds can pay an anti-detriment lump sum payment as part of a death benefit to eligible beneficiaries. The anti-detriment payment is effectively a refund of contributions tax on concessional contributions. Not all superannuation funds make these payments and are not legally required to do so.

The Federal Budget proposes to remove anti-detriment payments for consistency across all superannuation funds from 1 July 2017.

10. Removal of Eligibility Requirements to Make a Tax Deductible Personal Superannuation Contribution

What's the change?

Currently, to be eligible to make a personal tax deductible superannuation contribution, the individual must earn less than 10% of their income from salary or wages.

The Federal Budget proposes to remove this eligibility requirement and all individuals will be able to claim a tax deduction for concessional contributions up to the concessional contribution cap regardless of their employment arrangements.

11. Transition to Retirement Income Streams Super Fund Earnings to be Taxed

What's the change?

Currently the investment earnings on transition to retirement pensions are tax free. The Federal budget has proposed to tax the investment earnings on transition to retirement pensions at 15%.

We're Here to Help

If you're concerned about these changes, we encourage you to speak to a VicSuper Financial Planner.

As a member, the advice you receive from VicSuper is provided at no additional cost in most cases.

To request an appointment call our Member Centre on 1300 366 216, or Book Online.

At 7.30pm on Tuesday, 3 May 2016, Treasurer Scott Morrison handed down his first Federal Budget.

Economic stability and fairness is what the Government had been leading with for the 2016/17 Federal Budget, with speculated changes to superannuation featuring heavily in the preceding weeks.

So how has stability and fairness been translated in Mr Morrison's proposed changes to the super system?

We've outlined the eight changes we think you need to know about super and VicSuper Senior Financial Planner, Scott Middleton, sheds some light on what they might mean for members.

Note: The following proposals still need to be legislated. However, Parliament has been dissolved until after the Federal election on Saturday, 2 July 2016.


1. Non-Concessional Contributions Lifetime Cap

What's the change?

The Government will replace the existing non-concessional contributions cap, which allows non-concessional contributions of up to $180,000 per year, with a $500,000 lifetime non-concessional contributions cap.

The new Lifetime Cap will take into account all non-concessional contributions made on or after 1 July 2007.

Contributions made before 1 July 2007 will not result in an excess. However, excess contributions made after commencement will need to be removed or subject to penalty tax.

The cap will be indexed to average weekly ordinary time earnings in $50,000 increments.

What it means for members

While this change has an immediate start date (ie from Budget night), it still needs to be passed by the Government before it becomes effective.

Scott Middleton says: "We would encourage anyone who is likely to be impacted by this change to come and see a Financial Planner.

"It's important for all members to have the right strategies in place for their situation, but it becomes increasingly important the closer a member is to retirement."


Proposed effective 1 July 2017

2. Concessional Contributions Cap

What's the change?

The Government will change the concessional cap on pre-tax superannuation contributions.

The current cap that applies to pre-tax super contributions is $30,000 per annum for under 50s, and $35,000 per year for those aged 50 or over.

Under the Government's Federal Budget proposal, the cap will be reduced to $25,000 per annum irrespective of age.

What it means for members

These changes are most likely to have an impact on those who are contributing heavily to super as they near retirement age.

Scott Middleton says: "It's important to remember that even if the changes are passed as legislation, the concept of superannuation doesn't change. It remains an extremely tax-effective investment and savings vehicle and offers a number of other benefits not necessarily available through other investment channels, particularly for those approaching retirement.

"For those further from retirement, it highlights the benefits of adding that little bit extra early on to get ahead.

"We would certainly urge anyone who's concerned about these changes and considering their options to seek professional advice before making any adjustments to their strategy."

3. No Work Test for People Aged Under 75

What's the change?

People aged 65 to 75 will no longer have to satisfy a work test in order to make contributions to super.

What it means for members

Scott Middleton says: "Removing the work test for people under 75 will allow older Australians, even those who have ceased working, to increase their retirement savings in the super environment where they may not have been able to do so before."

4. Low Income Super Tax Offset (LISTO)

What's the change?

A Low Income Superannuation Tax Offset (maximum $500) will replace the Low Income Superannuation Contribution (LISC) for people with an adjusted taxable income up to $37,000 that have had a concessional contribution made on their behalf.

What it means for members

Scott Middleton says: "This is a great result for lower income earners. It's designed to help them avoid being in a situation where they might pay more tax on their savings within super than on income earned outside of super."

5. Spouse Tax Offset Threshold Increase for Spouse Contributions

What's the change?

The Government will increase access to the low income spouse superannuation tax offset.

The annual income threshold will be raised for the low income spouse from the current $10,800 to a proposed $37,000 (with a reducing tax offset applying between $37,000 and $40,000).

What it means for members

Scott Middleton says: "Flexible and part time work arrangements are becoming increasingly more common, particularly with parents returning to work following a period of leave, but also with older people who are choosing to work in part-time capacities instead of retiring or as they transition.

"This change really opens up opportunities for couples to ensure the retirement savings of both parties are looked after."

6. Catch-up Contributions (Balance under $500k)

What's the change?

The Government has proposed to allow individuals, who have a super balance less than $500,000, to accrue additional concessional contributions cap amounts if they have not reached their annual $25,000 concessional contributions cap (see 2.Concessional Contributions Cap ) in previous years.

Unused cap amounts will be carried forward on a rolling basis for a period of five consecutive years (starting from 1 July 2017).

The proposal also extends to members of defined benefit schemes.

What it means for members

Scott Middleton says: "Without this change the annual concessional caps would have the potential to limit the ability of people who have had interruptions to their work patterns or breaks from the workforce to ‘keep up' with those who haven't.

"This change essentially gives people an opportunity to catch up without being penalised or caught out by the concessional contributions cap if they have the funds to do so."

7. Concessional Contributions Tax Thresholds

What's the change?

The Federal Budget also included plans to cut down on tax concessions available to higher income earners.

Currently, people earning over $300,000 are taxed at 30% on pre-tax contributions.

The Government is now proposing to reduce this threshold to people earning $250,000 and over.

The proposal also extends to members of defined benefit schemes.

What it means for members

All pre-tax super contributions for those earning under $250,000 will still be taxed 15% in the super system. The change will only impact those earning $250,000 or more. For these people, an additional 15% will apply to concessional contributions.

Scott Middleton says: "People should not be put off the idea of super because of this change.

"Even if you are a higher income earner, the 30% tax rate that applies above the new threshold is still much, much lower than the Marginal Tax Rate of (up to 45%) that would apply to those earnings if they were outside of the superannuation system."

8. $1.6m Super Transfer Balance Cap

What's the change?

From 1 July 2017, the Government has proposed to introduce a transfer balance cap of $1.6 million on the total amount a person can transfer from superannuation into the retirement phase. Subsequent earnings on these balances in retirement phase will not be counted towards the cap.

The cap will be indexed to consumer price index in $100,000 increments.

People who already have more than $1.6 million in a pension account must transfer the excess amount into an accumulation super account or with draw it by 1 July 2017.

To replicate this for members of defined benefit schemes, the Government has proposed to tax pension payments over $100,000 at the individual's marginal tax rates for unfunded defined benefit schemes 9however the 10% tax offset will be capped at $10,000) and 50% of pension payments over $100,000 will be taxed at the individual's marginal tax rates for funded defined benefit schemes.

What it means for members

People who already have more than $1.6 million will be able to transfer the excess amount into an accumulation super account.

Scott Middleton says: "Again, I would urge anyone who is likely to be affected by this change to come in and get professional advice or for a review of their current strategy.

"An appointment only takes around an hour, and in most cases, for members there is no additional cost."

9. Removal of Anti-Detriment Payments

What's the change?

Superannuation funds can pay an anti-detriment lump sum payment as part of a death benefit to eligible beneficiaries. The anti-detriment payment is effectively a refund of contributions tax on concessional contributions. Not all superannuation funds make these payments and are not legally required to do so.

The Federal Budget proposes to remove anti-detriment payments for consistency across all superannuation funds from 1 July 2017.

10. Removal of Eligibility Requirements to Make a Tax Deductible Personal Superannuation Contribution

What's the change?

Currently, to be eligible to make a personal tax deductible superannuation contribution, the individual must earn less than 10% of their income from salary or wages.

The Federal Budget proposes to remove this eligibility requirement and all individuals will be able to claim a tax deduction for concessional contributions up to the concessional contribution cap regardless of their employment arrangements.

11. Transition to Retirement Income Streams Super Fund Earnings to be Taxed

What's the change?

Currently the investment earnings on transition to retirement pensions are tax free. The Federal budget has proposed to tax the investment earnings on transition to retirement pensions at 15%.

We're Here to Help

If you're concerned about these changes, we encourage you to speak to a VicSuper Financial Planner.

As a member, the advice you receive from VicSuper is provided at no additional cost in most cases.

To request an appointment call our Member Centre on 1300 366 216, or Book Online.