Potential changes to super rules and regulations that are discussed by the government can cause investors to worry.
But while discussion can focus on what might happen, there will be proposals made that may never become law and will never have any effect on your super.
It’s good to stay informed, but having a diversified investment portfolio over the course of your financial journey can be a way to help ride out any fluctuations in the market, the economy or changes in government policy, no matter which party holds power.
What's on the table?
Before the election was called, the Federal Government announced its Budget proposals.
These are some of the proposed changes to super announced by the Turnbull Government in the 2016 Budget in May:
- Replacing existing annual non-concessional cap of $180,000 with a lifetime non-concessional contributions cap of $500,000, effective Budget night, 7.30 pm (AEST) on 3 May 2016
- Cutting the annual cap on concessional contributions to $25,000 from the current $30,000 ($35,000 for those over 50) from 1 July 2017
- Requiring people with combined incomes and superannuation contributions of more than $250,000 to pay 30% tax on concessional contributions, up from 15%
- Introducing a transfer balance cap of $1.6 million on amounts moving into the tax-free retirement phase from 1 July 2017. For existing pensions with balances in excess of $1.6 million, the excess amount will need to be either withdrawn from super or transferred back into accumulation phase
- Introducing a Low Income Superannuation Tax Offset to replace the Low Income Superannuation Contribution when it expires on 30 June 2017 for individuals. This will allow people with an adjusted taxable income of $37,000 or less to receive an effective refund of the contribution tax paid on their contributions, capped at $500
- Allowing people with superannuation balance less than $500,000 to carry forward on a rolling basis over 5 consecutive years unused concessional contribution cap amounts from 1 July 2017. This will give people an opportunity to “catch-up” on concessional contribution if they have the capacity to do so
- Removing contribution eligibility requirements for those aged 65 to 74 which will allow older Australians the ability to increase their retirement savings regardless of their working status.
These were just proposals and ultimately, it is the Australian Parliament that controls government finances and has to authorise any changes to taxation legislation and any spending of money by passing an appropriation bill.
This means before they become law, the appropriation bills must be passed by both the House of Representatives, which is controlled by the government, and the Senate, where proposed expenditures are subjected to examination within Senate estimates hearings.
Nothing can change without this procedure taking place.
Labor party plans
Labor (ALP) says it will target superannuation tax concessions and suggests that its proposals will help to ‘keep super fair’.
The ALP proposals include:
- limiting the tax-free concession available to earnings on assets supporting income streams to $75,000 a year for each individual
- reducing the Higher Income Superannuation Charge (HICS) threshold from $300,000 to $250,000
What the parties agree on
- the Super Guarantee should increase over time to 12%
- the Low Income Super Contribution (LISC) should be supported beyond 2017
- fairer excess contributions rules
- support for fixing the women’s super savings gap
- double contribution tax for high-income earners
Once a new government is formed, any future changes to legislation for super will follow the usual procedure of being introduced, read and passed by both the House of Representatives and the Senate in order to become law.
Any Australian government might make changes to what investors can do at various life stages, and it can be wise to stay informed about how those changes might affect your superannuation.
With a long-term investment such as super, reassessing your investment strategies as your personal circumstances change, as well as taking into account the political, economic and market moving events going on in Australia and around the world, can help in your planning for the lifestyle you would like in retirement.