Last night the Federal Treasurer, The Hon Scott Morrison MP, handed down the 2018-19 Federal Budget. The budget announcement covered a range of proposed changes and initiatives in relation to superannuation, including:
- Opt-in insurance
- Cap on passive fees
- Inactive superannuation accounts
- Comprehensive income products for retirement
- Exemption to the work test
- Exception to the superannuation guarantee
In addition to proposed changes to superannuation, the treasurer also announced several other significant changes in the budget that the government will seek to legislate, including:
- Low and middle income tax offset
- Pensioner Work Bonus and Pensions Loans Scheme
- Marginal tax rates
The changes and initiatives relating to superannuation entail the following:
The government has proposed that from 1 July 2019 insurances within superannuation will be available on an opt-in basis for members: with balances less than $6,000; are under the age of 25; and whose accounts are considered inactive (i.e. have not received contributions for 13 months).
Cap on passive fees
The government has proposed that from 1 July 2019 passive fees on superannuation accounts with balances less than $6,000 will be capped at 3% annually. Further, it has been proposed that exit fees will be banned on all superannuation accounts.
Inactive superannuation accounts
The government has proposed that from 1 July 2019 superannuation funds will have to transfer all superannuation accounts with balances less than $6,000 to the ATO if these accounts are deemed inactive (i.e. have not received contributions for 13 months).
Comprehensive income products for retirement
The government is beginning a consultation process to determine how to implement a ‘retirement covenant’, which will require superannuation fund trustees to formulate retirement income strategies for fund members and to offer Comprehensive Income Products for Retirement (products that provide income for life). The government is also proposing new requirements for providers of retirement income products to use simplified and standardised metrics in product disclosure (no date has been set for this change). Further, the government is proposing from 1 July 2019 adjustments to the pension means test to incentivise the use of lifetime retirement income products.
Exemption to the work test
The government has proposed that from 1 July 2019 people aged 65-74 with superannuation account balances less than $300,000 will be exempted from the work test for voluntary contributions for the first year in which they do not meet the work test criteria.
Exception to the superannuation guarantee
The government has proposed that from 1 July 2018 individuals with income more than $263,157 that is derived from multiple employers can nominate that income received from 1 or more employers not be subject to the superannuation guarantee. This proposal aims to help prevent high income earners inadvertently breaching the $25,000 annual concessional contributions cap.
Other significant changes announced in the budget entail the following:
Low and middle income tax offset
In addition to the current Low Income Tax Offset, the government has proposed a new low and middle income tax offset starting from 1 July 2018. The proposed offset is as follows:
|Taxable Income p.a.||Offset Available p.a.|
|Up to $37,000||$200|
|$37,001 – $48,000||$200 plus 3 cents for every dollar over $37,000|
|$48,001 – $90,000||$530|
|$90,0001 – $125,333||$530 less 1.5 cents for every dollar over $90,000|
|$125,334 and above||No offset available|
Pensioner Work Bonus and Pensions Loans Scheme
The government has proposed lifting the earnings cap for the Pensioner Work Bonus from $250 per fortnight to $300 per fortnight. This would pensioners could earn $7,800 p.a. without affecting their pension. The government has also proposed expanding the Pensions Loans Scheme to allow full-rate pensioners to increase their income by up to $11,799 for singles and $17,787 for couples per year and have the maximum allowable combined Age Pension and PLS income stream increase to 150% of the Age Pension rate.
Marginal tax rates
The government has proposed that from 1 July 2018 that the upper threshold for the 32.5% rate be increased from $87,000 to $90,000. The government is also proposing that this threshold will increase to $120,000 from 1 July 2022, and then be increased again to $200,000 from 1 July 2024.