There were few proposed changes to super in the 2020 Federal Budget, but those changes should help members improve their retirement outcomes and could change the way super is managed through an employer.
Other big changes were income tax cuts and support for jobs growth and include:
- bringing forward already legislated income tax cuts to 11.6 million workers
- encouraging business to take on young workers by means of the new Jobmaker hiring credit
- spending on infrastructure to boost Australia’s economy
- increasing spending on local manufacturing.
In our 2020 Federal Budget summary we review these key Budget measures and more. These include announcements on super, how the federal government is supporting workers, women and pensioners, and investing in affordable housing. Importantly, we look at how the Budget may affect VicSuper members. Keep in mind that at this stage the Budget measures are proposals, and only become law once the relevant legislation is passed.
Changes to superannuation
To prevent the creation of multiple superannuation accounts, which lead to additional fees and insurance premiums, the Government has proposed three changes to the way Australians start a superannuation account.
- A new process for choosing a fund when you change jobs, which will see employers using your existing fund, if you do not choose your own.
- YourSuper, a new online tool from the Australian Taxation Office (ATO), for comparing funds, viewing your current funds and selecting a new fund.
- An annual performance test on the MySuper products that super funds hold.
There are also changes strengthening the obligation of super funds to act in the best financial interest of members and disclose information about how they manage members’ money.
While the Budget sets out the Government’s intention, not much detail about these reforms has been announced so far.
Choosing a fund
The Government is proposing to change how your superannuation fund is decided when you move from one job to the next. The proposal implements a recommendation of the Banking Royal Commission that if an employee doesn’t choose a new fund when they start a new job, they will continue to use their existing fund. That is, they won’t automatically ’default’ to the super fund of their new employer.
If a new employee does not choose a fund, their employer will identify their existing fund through the ATO, and use this fund to make the employee’s superannuation contributions.
Default arrangements (i.e. moving to the employer’s super fund) will continue for employees who do not have an existing super account, such as those joining the workforce for the first time or those who have emptied their existing account through the COVID-19 early release scheme.
YourSuper online tool
To help members compare funds, the Government is proposing to launch a new online comparison called YourSuper. This tool will show members the difference in fees and performance of super funds, making it easier for you to choose a super fund that best suits your needs.
Regulator benchmarks on performance
The Government and regulator are focused on improving performance for members.
A further proposed reform is to have the regulator, the Australian Prudential Regulation Authority (APRA) develop benchmarks for investment underperformance and to assess every fund’s MySuper (default) products annually. Funds which underperform over two consecutive years from July 2021, will not be able to accept new members.
The Government is also proposing to strengthen the obligation of super funds to act in the best financial interests of members. Super funds will also be required to provide members with key information about how they manage and spend their members’ money.
Income tax cuts brought forward
The Government is planning to bring forward the income tax cuts scheduled for 1 July 2022, which means 11.6 million Australians will have more money in their pockets from as early as this year. These cuts are to be backdated to 1 July 2020.
What does it mean for you?
We’ve put together a case study to show how the tax cut may impact a VicSuper member.
Helen, age 57, is a schoolteacher. She earns $80,000 plus 9.5% compulsory superannuation. At this salary level, Helen saves another $1,080 in income tax due to the 32.5% marginal tax rate - increasing from $37,000 to $45,000 in this Budget.
What can you do with your tax saving?
Helen has a few options for the extra $1,080 she gained in this year’s Budget. Depending on her current financial situation, she could:
- Enjoy spending the extra money.
- Pay an extra $1,080 off her mortgage or credit card to reduce debt before she goes into retirement by saving on interest payable in future years.
- Contribute extra into her superannuation account. If Helen is not going to reach her $25,000 concessional contribution cap for FY 2021, she could make a pre-tax contribution of $1,649. As this is concessional, her take-home pay is only reduced by $1,080. Helen will be taxed 15% on $1,649 as it goes into superannuation, meaning she adds $1,402 to her superannuation balance, which can then compound over time.
Helen’s options are described in this table:
|Spend and enjoy the tax cut immediately||Use the tax cut to reduce debt||Use the tax cut to make a concessional contribution to superannuation|
|Concessional contribution to superannuation||0||0||$1,649*|
|Tax on taxable income||-$16,467||-$16,467||-$15,931|
|Extra in superannuation||$0||$0||$1,402**|
|Spend the tax cut||-$1,080||$0||$0|
* This is the $1,080 tax cut expressed in pre-tax dollars
** $1,649 less 15% contribution tax
^ Includes the $1,080 tax cut that is used to reduce debt
Helen could speak to a financial planner about which would be best option for her.
A summary of the proposals include:
- increasing the upper threshold of the 19% tax bracket from $37,000 to $45,000
- increasing the upper threshold of the 32.5% tax bracket from $90,000 to $120,000
- keeping the Low and Middle Income Tax Offset (LMITO) for 2020-21, after which it will end
- increasing the Low Income Tax Offset (LITO) from $445 to $700.
Additional support to pensioners through the pandemic
To help Australians through the financial challenges they may continue to face as a result of COVID-19, the Government will provide $2.6 billion through two additional economic support payments of $250 each to pensioners and other eligible recipients, such as people receiving Disability Support Pension or Carer Payment. These payments are on top of the two previous economic support payments of $750 to those on social security and other eligible recipients. This measure will benefit around 5.1 million pensioners.
Jobs growth announcements to help boost the economy
There was a suite of initiatives announced to support jobs growth, from direct wage subsidies to infrastructure investment, to secure the future of Australian workers. Two key measures for our members are those designed to help women in the workforce and support for younger workers.
Support for women
The Government is introducing a $240 million package to create jobs, help parents and support women in the workplace. The package will deliver:
- employment programs to support women’s leadership and development, and
- more opportunities for women in science, technology, engineering and mathematics (STEM), business and male-dominated industries.
The $50 million Women@Work plan will expand the Women’s Leadership and Development Program grants and establish a Respect@Work Council to address sexual harassment at work. This builds on the Government’s commitment to support women’s safety at work and at home.
An additional $35.9 million is lined up to expand the Boosting Female Founders initiative to provide women entrepreneurs access to expert mentoring and business advice.
Support for young job seekers
There will be a JobMaker Hiring Credit of up to $200 per week to encourage businesses to hire Australians aged between 16 and 35 years.
The Government will provide $4 billion over the next three years and it is expected that this proposal will support around 450,000 jobs for young people. The JobMaker Hiring Credit will start immediately.
The Government announced an extra $14 billion in new and fast-tracked infrastructure projects over the next four years. These projects will support a further 40,000 jobs.
The Government will attract institutional investment from super funds into affordable housing for Australians by increasing its guarantee of the National Housing Finance and Investment Corporation. VicSuper is a strong supporter of affordable housing initiatives with nearly $250 million invested in essential worker affordable housing across Australia and a commitment to increase this investment to $400 million by the end of the year.
Fast-tracking ‘shovel ready’ projects
This measure will provide an extra $3 billion towards projects that are ready to begin, supporting the creation of more jobs and helping with economic recovery. It builds on the $2 billion announced since May 2020.
Infrastructure funding includes $2 billion to deliver small-scale road safety projects and an additional $1 billion for the Local Roads and Community Infrastructure Program, on top of the $500 million already announced.
These programs are expected to support over 10,000 jobs over the next two years.
Update for our health and education workers
These measures may not affect you directly, but may help people you work with.
Health, Disability and Aged Care
The Government will provide $2.0 billion over four years from 2020-21 to further support older Australians accessing aged care, by providing additional home care packages and continuing to improve transparency and regulatory standards. There will be an additional 23,000 home care packages over the next four years, a new Disability Support for Older Australians program to ensure that older Australians with disability who were not eligible for the National Disability Insurance Scheme (NDIS) continue to receive the supports they need, and continued the reform to residential aged care funding.
In addition, the Government will provide $746.3 million over four years from 2020-21 to support older Australians throughout the COVID-19 pandemic. Funding includes $245.0 million in 2020-21 for a COVID supplement to assist all Commonwealth funded residential aged care providers and home care providers with the cost of operating during the COVID-19 pandemic.
The Government is providing an additional $3.9 billion for the NDIS which is providing life changing support to 400,000 Australians with a disability. Disability Support Pension recipients will receive the $250 payment from December and a further $250 payment from March next year. The Government will provide a targeted capital gains tax (CGT) exemption for granny flat arrangements for older Australians or those with a disability.
Skills training and education
The Government has committed an additional $1.2 billion to create 100,000 new apprenticeships and traineeships, with a 50% wage subsidy for businesses who employ them. They’ll also provide $263 million over four years from 2020-21, to continue to improve the quality of the Vocational Education and Training (VET) system. The Government also announced funding for 50,000 new higher education short courses in agriculture, health, IT, science and teaching, 12,000 new Commonwealth supported places for higher education in 2021, and 2,000 indigenous students through the Clontarf Foundation to complete Year 12 and pursue further education or find employment.
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