Removing compulsory life insurance from the super accounts of young people and reuniting many Australians with their lost or inactive super accounts were among the key superannuation measures announced in the 2018/19 Federal Budget.
For retirees, the focus was on helping both pensioners and self-funded retirees boost their income, with the Government expanding the Pension Work Scheme and allowing more people to access Centrelink’s Pension Loans (home equity) Scheme.
Importantly, last night’s Budget did NOT contain any major changes to the way superannuation is taxed or any changes to the concessional or non-concessional cap limits on voluntary contributions.
The timetable to increase the Superannuation Guarantee rate to 12% was also left untouched, with the next increase from 9.5 per cent to 10 per cent scheduled to occur in 2021.
The Government is proposing to abolish default life insurance cover within superannuation for young people under 25 as well as those with low and inactive accounts.
Under the proposals, all super accounts that have not received a contribution for 13 months will be classified as inactive. Accounts with balances of less than $6,000 will be classed as low balance.
These proposals aim to protect the superannuation balances of these members from being eroded by insurance premiums, but may lead to higher insurance premiums for other members.
Importantly, members will still have the opportunity to obtain insurance cover if they choose to do so.
In a bid to prevent people with multiple super accounts from having their savings excessively eroded by fees, the Australian Tax Office has been given the power to actively reunite Australians with their lost and inactive superannuation.
Under the proposals, all super accounts that have not received a contribution for 13 months, with balances below $6,000, will be classified as inactive and transferred to the ATO. These are typically accounts belonging to young members, low income earners and seasonal workers.
The ATO will then use data matching to automatically consolidate these accounts with members’ active accounts.
The Government expects the new system will reunite $6 billion of superannuation with 3 million members’ active accounts in 2019-20.
Of course, if you want to combine your super accounts with Local Government Super, you can do it online at supermatch.lgsuper.com.au or call us on 1300 LGSUPER (1300 547 873) and we’ll do it for you.
The Government has proposed two new measures to tackle the impact of superannuation fees on member balances and make it easier for members to consolidate their accounts. It will abolish super fund exit fees and cap certain fees on balances of less than $6,000 at 3 per cent. The Government has estimated the fee cap on low balances will return $570 million to super fund members.
High-income earners with multiple employers will be protected from inadvertently breaching the annual super contributions limits. Individuals who earn more than $263,157 a year from multiple employers will be allowed to make wages from certain companies exempt from the Super Guarantee.
Under current rules, individuals earning more than this amount from multiple sources face a tax bill if they contribute more than the annual $25,000 limit.
The Pension Loans Scheme is a reverse-mortgage style scheme that enables retirees to release equity in their home to boost their retirement income. The Scheme – administered by Centrelink - is currently only open to retirees who are eligible for a part Age Pension and is not widely used.
The Government has proposed extending the Scheme to all retirees, including full rate Age Pensioners and self-funded retirees.
Under this Scheme, full pensioners will be able to increase their income by up to 50 per cent of the Age Pension. This will enable single retirees who own their own home to boost their income by up to $11,799 and couples to boost their retirement income by up to $17,800 without impacting their eligibility for the Age Pension or other benefits.
The Pension Work Bonus allows pensioners to earn up to $250 each fortnight without reducing their Age Pension. It will be expanded to allow pensioners to earn an extra $50 a fortnight ($1,300 a year) without reducing their pension payments.
The Pension Work Bonus will also be expanded to self-employed people who will be able to earn up to $7,800 a year, without reducing their pension payments.
The Government expects 88,000 people to take up the option to work more as a result of these changes.
Retirees aged between 65 and 74 with a superannuation balance below $300,000 will be allowed to make voluntary super contributions for the first year that they no longer meet the work test requirements.
From 1 July 2019 new Age Pension means testing rules will be introduced for pooled lifetime income streams. The rules will assess a fixed 60 per cent of all pooled lifetime product payments as income, and 60 per cent of the purchase price of the product as assets until 84, or a minimum of 5 years, and then 30 per cent for the rest of the person’s life. This will mean people using these products will lose less pension entitlements.
The Government has proposed introducing a new framework for super funds to develop retirement income products. For more details on these proposed changes for retirees, take a look at the Federal Government’s Budget fact sheet.
This document was prepared in May 2018 by the Australian Institute of Superannuation Trustees (AIST) ABN 19 123 284 275. This document is of a general nature and does not take into account your personal objectives, situation or needs. Issued by LGSS Pty Limited (ABN 68 078 003 497) (AFSL 383558), as Trustee for Local Government Super (ABN 28 901 371 321). This document contains general information only.