The superannuation sector and Australia’s 15.6 million super fund members don’t have to deal with the massive changes experienced in recent budgets, however, Labor’s first budget in nine years delivered changes you need to know about.

Downsizer

Home downsizer changes will cut the age limit for those using the measure from 60 to 55.

What it means is that from age 55 those who have lived in a home for 10 years or more can sell it and contribute up to $300,000 or $600,000 for a couple, to their superannuation accounts. The move won’t affect any of the contribution caps to superannuation – the $27,500 concessional cap or the $330,000 non-concessional cap over three years.

However, after the contribution is made it will be added to your super account’s transfer balance cap which may affect the amount you can contribute in coming years.

Pensioner home sales

Until now pensioners have been able to sell their home and hold the proceeds in cash without it negatively affecting their pension rights under the assets test, for a year. The budget extended the time that cash can be held before buying a new home to 24 months.

Significantly the deeming rate on all the cash held will be at the lowest level, 0.25 per cent. Previously any funds held following the sale of a home above $93,600 were deemed to earn 2.25 per cent interest for the purposes of the age pension income test.

“That is fair because people are only holding the money to buy another house, not get around the superannuation rules,” said Chris Morcom, a planner with Hewison Private Wealth.

“In the past, people have had their pension reduced or lost it all together because of the workings of the deeming provisions.”

Overall deeming rates

Deeming rates have been cut in recent years to take account of low interest rates on bank deposits. Despite the fact that rates are now rising, Treasurer Jim Chalmers announced that deeming rates will be held at current levels until June 30, 2024.

Work bonus lifted

The budget cemented the government’s promise to boost the work bonus that allows pensioners to work without losing pension payments by $4000 to $11,800. However, the move only lasts until June 30 next year, leading Ian Henschke, chief advocate with National Seniors, to describe the measure as too timid.

“Modelling produced for us by Deloitte showed that if you allowed pensioners to work and receive the pension and you got 8 per cent of pensioners working the government would break even,” Mr Henshke said.

That would work if pensioners were taxed like other workers as they would pay income tax on any money earned above the effective tax-free threshold of $21,885. Currently, only 3 per cent of age pensioners work.

The CEO of aged lobby COTA Australia, Ian Yates, says the government may make further changes. “They’re putting their toes in the water to see if it has any effect.”

“If the government sees a strong response [from pensioners working more] then they’ll introduce a longer-term measure,” Mr Yates said.

Boosting seniors healthcare card thresholds

Self-funded retirees are likely to benefit from the cementing of this promise. There is no assets test on the seniors health card which delivers cut-price health and pharmacy care.

But current income test levels meant many retirees with mid-level incomes were barred from access. That will change with income thresholds increasing from $61,284 to $90,000 for singles and $98,054 to $144,000 (combined) for couple.

Self-managed super fund rules tightened

Penalties for breaching superannuation rules by SMSFs will increase by 24 per cent to $275 per unit. Penalties on breaches are levied in units with the most serious being penalised at 60 times the basic $275 unit cost.

SMSFs will also lose the right to receive franking credits paid out by companies that use off market share buybacks to pay through to their shareholders as franked dividends. Franked dividends are assumed to have been taxed at 30c in the dollar giving super funds, which are taxed at a maximum of 10c in the dollar, a big advantage.

Off market buybacks have effectively allowed companies to borrow money and pay it to their shareholders as franked dividends rather than treating it as a capital return that is subject to capital gains tax.

The government’s stated budgetary aim of reducing inflation was very important to pensioners and retirees, Mr Yates said. “Inflation just erodes savings and makes everything you buy more expensive.”

The New Daily is owned by Industry Super Holdings