Australians have elected a new federal government with a range of policies affecting people’s superannuation.
But what are these policies – and how will they affect you?
Hilary Spear, head of corporate affairs at Australian Super (a part owner of The New Daily), said there were two proposed changes that could significantly affect members, both related to the repeal of the Mineral Resources Rent Tax (MRRT).
- The delay in increasing the level of compulsory super contributions; and
- Scrapping tax concessions on super for people earning under $37,000 a year.
“We are particularly concerned about the impact of these changes on people with lower salaries,” she told The New Daily.
“The upshot is that people on lower salaries would pay a higher rate of tax on their super than their marginal tax rate.
“Without the Low Income Super Contribution, these Australians won’t get any tax concessions on their contributions.
“We have two million members and have an estimated 595,000 members who would be affected by this cut.”
Ms Spear said that demographic realities meant about two thirds of people earning less than $37,000 a year were women.
The reforms could eventually lead to a drain on government finances, as people reached retirement age without sufficient savings and were forced to rely on the age pension.
Leading economist Saul Eslake said that, in the long term, it would be interesting to see if the Government considered a plan to increase compulsory super contributions for very high income earners.
“In 2012, there was a proposal from the Labor Government to increase to 30 per cent the contribution of people earning more than $300,000 a year, when at the moment it is 15 per cent,” Mr Eslake said.
“But it was never legislated.”
Some of the recent changes announced by the Government
Delay the Superannuation Guarantee (SG) increase to 12 per cent by two years
The Superannuation Guarantee is the official term for the compulsory superannuation contributions made by employers on behalf of their workers.
The Coalition says it plans to honour Labor’s superannuation increase from nine per cent to 12 per cent, but the implementation timeline will be delayed by two years. Under the revised timetable, superannuation contributions will reach 12 per cent by July 1, 2021.
Super and Paid Parental Leave
Super contributions are to be included as part of the Coalition’s proposed Paid Parental Leave scheme. The plan delivers working mothers with an annual salary of up to $150,000 their full pay for 26 weeks while they take time off work to care for their newborns.
The Coalition estimates that a woman earning $65,000 who has two children in her mid- to late-twenties will be around $50,000 better off in retirement, thanks to the super contributions while she is on maternity leave.
Under the scheme, fathers will be eligible for two weeks out of the 26 weeks for dedicated parental leave at their actual wage or the national minimum wage (whatever is is greater), plus superannuation.
Hit for low-income earners
The low income super contribution is a government superannuation payment of up to $500 a year to help low-income earners.
People earning $37,000 or less a year are eligible to receive the automatic payment directly into their super account. However, the Coalition plans to abolish the low income super contribution because it is linked with Labor’s Mineral Resources Rent Tax.
Prime Minister Tony Abbott introduced legislation to repeal the tax earlier this month. The bill has been approved in Parliament, but still has to be passed by the Senate.
Boost for the ‘aspirational’
The Government has announced plans to roll back the proposed 15 per cent tax on superannuation earnings of more than $100,000 a year.
Treasurer Hockey has argued the policy is simply too complex, while Assistant Treasurer Arthur Sinodinos has argued the Government wants to encourage people to be ‘aspirational’.
While this policy has been criticised from those who say it favours the well-heeled, it has also won praise from some industry groups who say it will benefit those nearing retirement.
Better communication and financial advice
Perhaps less important for the average super customer, but worth noting if you plan on keeping an eagle-eye on what’s happening with your ‘hard earned’.
The Coalition says it wants improved reporting standards for the industry and has floated the idea of industry-wide definitions and performance benchmarks – basically making clear what’s happening and what you are paying.
Changes could include the standard reporting of fees and returns on investment options, as well as comparable definitions for asset classes and investments.
The Coalition is also known to be considering changes to financial advice rules (Future of Financial Advice or FOFA).