by Mark Causer
Super Guarantee Changes
On 2 May 2010, Federal Treasurer Wayne Swan announced an increase in the Superannuation Guarantee (SG) rate from 9.0% to 12.0%. Last year, this became law and will be effective from 1 July 2013.
This measure will significantly increase future retirement incomes for Australian workers through the gradual increase in the superannuation guarantee (SG) rate to 12.0%.
The SG rate will be increased gradually with initial increments of 0.25% on 1 July 2013 and on 1 July 2014. Further increments of 0.5% will apply annually up to 2019-20, when the SG rate will be set at 12.0%.
Around 8.4 million employees are expected to benefit from this measure.
Australia's pool of superannuation savings today stands at over $1 trillion, increasing investment potential and ensuring that reliance on foreign funds is lower than otherwise.
The number of Australians aged over 65 is projected to grow from 3 million to 8.1 million by 2050. Over the next 40 years, the ratio of working age Australians to those aged over 65 will decrease from 5-to-1 to just 2.7-to-1.
A major challenge is to ensure an adequate retirement income for our ageing population.
What is MySuper?
MySuper was announced by the Federal Government as a means to achieve a low cost default superannuation for employees who haven’t made any decisions with their super (e.g. chosen an investment option or a super fund). These funds will offer a basic set of product features.
Importantly, members of super funds continue to have full CHOICE, and may elect to have their superannuation paid to their existing preferred super fund or any other super fund of their choice.
At the time of writing, final pieces of the MySuper legislation are yet to be finalised.
When will MySuper start?
The Government previously announced that superannuation funds will be able to offer MySuper products from 1 July 2013.
From 1 January 2014, employers will be required to direct super contributions to a MySuper fund for any employee who has not made an active choice for their super. The member must make an active choice of superannuation fund to avoid this.
Trustees of superannuation funds offering MySuper products may also need to transfer some or all of the existing balances of their default members to a MySuper product by 1 July 2017.
How much will MySuper products cost?
The Government has decided that funds choosing to offer MySuper must offer a product with a single investment strategy and a standard set of fees available to all prospective members. Care should be taken however as existing superannuation funds, particularly for large employer plans may well be more cost effective. Investment performance (net of fees), should be key consideration.
As new MySuper products are yet to be launched, it is too early at this stage to make a call on the average level of fees/charges which may applied however what a member can be charged in MySuper products will be generally limited to:
investment fee (including a performance-based fee, subject to the limitations outlined below);
buy and sell spreads (limited to cost recovery);
exit fee (limited to cost recovery); and
switching fee (limited to cost recovery).
What about my Insurance?
There will be a requirement to offer Life and Total and Permanent Disability (TPD) cover on an opt out basis. Income Protection insurance will also be offered.
Superannuation Contribution Caps
There are caps on the amount you can contribute to superannuation each financial year that are taxed at lower rates. If you contribute more than these caps you may have to pay extra tax.
The cap amount and how much extra tax you have to pay depends on whether the contributions are:
concessional (before-tax) contributions
non-concessional (after-tax) contributions.
Concessional Contributions Cap
Concessional contributions include;
employer contributions (including contributions made under a salary sacrifice arrangement)
personal contributions claimed as a tax deduction by a self-employed person.
For 2012-13 and 2013-14 the contribution cap remains at $25,000 p.a.
Non-concessional Contributions Cap
Non-concessional contributions include personal contributions for which you do not claim an income tax deduction.
For 2012-13 the contribution cap remains at $150,000 p.a. For those under 65 years of age, you may be able to make non-concessional contributions up to three times the non-concessional contributions cap over a three-year period. This is known as the 'bring-forward' option. This means that under certain circumstances you can contribute up to $450,000 ($150,000 x 3) in one financial year.
Advice should be sought as to how you might maximise this rule.
Individual income tax rates
The individual income tax rates for 2012-13 and 2013-14 are outlined in the table below:-
|Taxable Income||Tax on this Income|
$0 - $18,200
$18,201 - $37,000
$37,001 - $80,000
$80,001 - $180,000
$180,001 and over
19c for each $1 over $18,200
$3,572 plus 32.5c for each $1 over $37,000
$17,547 plus 37c for each $1 over $80,000
$54,547 plus 45c for each $1 over $180,000
Please note, the above rates do not include the Medicare levy of 1.5%.
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