Government delivers tough 2014-15 Federal Budget
Refunds of excess non-concessional contributions, changes to the Super Guarantee and tighter rules on qualifying social security benefits were the main Budget announcements to impact on superannuation this year. These changes, along with others, should provide a Budget deficit of just under $30 billion in 2014-15 with no surplus due anytime soon.
The key changes proposed for superannuation and social security are:
- Excess Non-Concessional Contribution Refunding
For any excess contributions made after 1 July 2013 that are over the non-concessional contribution (NCC) cap, the Government will allow withdrawal of the excess NCCs and any associated earnings from super. Earnings withdrawn from the fund will be taxed at personal tax rates. If the excess NCCsare left in the fund, tax will be paid on the excess at the top marginal tax rate.
- Rephasing Superannuation Guarantee
The Superannuation Guarantee (SG) Rate will increase to 9.5% from 1 July 2014, instead of remaining at 9.25% as the Government has previously indicated would occur as part of its mining tax repeal. The Superannuation Guarantee rate will then be maintained at 9.5% until 30 June 2018, and on 1 July 2018 it will resume increasing by 0.5% increments until it reaches 12% in 2022-23.
- Increasing of Age Pension Age to 70 from 2035
The Age Pension age is to be lifted to 70 from 2035. From 1 July 2025, the Age Pension qualifying age will continue to rise by six months every two years, from the qualifying age of 67 years that will apply by that time, to gradually reach a qualifying age of 70 years by 1 July 2035. People born before 1 July 1958 will not be affected by this change. Also, there has been no change to the preservation age for accessingpreserved superannuation benefits.
- Indexing the Age Pension by the Consumer Price Index
The Age Pension is to be indexed to the Consumer Price Index (CPI) from 1 September 2017. Currently, pension payments are indexed in line with the higher of the increases in the CPI, Male Total Average Weekly Earnings or the Pensioner and Beneficiary Living Cost Index. This change will likely result in lower future pension increases.
- Resetting the Pension Deeming Rate Thresholds
The income deeming thresholds used in the pension income test will be reset to $30,000 for singles (currently $46,600) and $50,000 for couples (currently $77,400) from 20 September 2017. The deeming rules assume financial assets are earning a certain amount of income, regardless of the income actually earnedfor the purpose of determining eligibility to social security payments. The Government is making this change to better target pension payments, by tightening the income test.
- Maintaining Eligibility Thresholds for Australian Government Payments for Three Years
Eligibility test thresholds for pension and pension related payments will be maintained for three years from 1 July 2017. Major pension related payments include the Aged Pension, Carer Payment, Disability Support Pension and the Veterans’ Service Pension.
- Commonwealth Seniors Health Card Changes
There are proposed to be a number of changes to the CSHC. These changes are:
- Indexing the current income limits for the CSHC by the CPI in line with its election commitment to do so.
- Including untaxed superannuation income in the eligibility assessment for the CSHC from 1 January 2015. All superannuation account-based income streams held by CSHC holders before the 1 January 2015 will be grandfathered under the existing rules.
- The Government will achieve savings of $1.1 billion over five years from 2013-14 by ceasing the Seniors Supplement for holders of the CSHC from 20 September 2014.
How can we help?
If you would like some assistance with identifying how these recent changes are likely to affect your own retirement income planning, please feel free to give me a call to arrange a time to meet so that we can discuss their impact on your particular circumstances. We can then determine whether you need to make any changes to your existing arrangements.