Only 4.2% of people will be adversely affected by Budget super changes

Budget 2016, superannuation changes, superannuation policy, measures, Grattan Institute, 4% people adversely affectedThe Grattan Institute says changes to superannuation announced in the 2016 Budget will make the super system fairer and help repair the budget bottom line, while agreeing with Government estimates that only around 4% of people will be adversely affected.

Update: the Government has released the first tranche of superannuation legislation for the changes announced in the 2016 Budget.

“Winding back superannuation tax breaks is an acid test of our political system, and should be one of the first items of business in the current Parliament,” said the Institute, releasing the report: A better super system: assessing the 2016 tax reforms.

“Overall, both the Government’s and the ALP’s proposed changes are a big step in the right direction. Those affected are overwhelmingly high-income earners who are unlikely to ever qualify for the Age Pension in retirement. Yet the changes don’t go far enough.”

The Grattan Institute agrees with a number of the Government’s proposed changes to superannuation, including reducing the concessional contributions cap and lowering the Division 293 threshold, while taking issue with some of the other Budget changes.

The report says it is “unclear” how the Low Income Superannuation Tax Offset, which replaces the LISC, will help boost retirement incomes.

“It remains unclear whether the best way to improve retirement incomes for low-income earners is to provide extra super tax breaks such as the LISTO, or additional Age Pension support,” says the Institute, calling for more evidence based on super fund records.

Unlike the ALP, the Grattan Institute supports removing the restriction on employees claiming tax deductions for personal super contributions, saying the measure “does promote consistency”.

However the Institute agrees with the ALP that the ‘carried forward’ concessional contribution cap provisions are “not needed”.

“While most of the Government’s proposed changes will better target contributions tax breaks, the ‘carry forward’ provisions are a step backwards,” says the Grattan Institute.

“The primary beneficiaries of these ‘catch up’ provisions are likely to be younger high-income earners, overwhelmingly men.”

“If the carry-forward provisions nevertheless remain, they should be more tightly targeted to those with broken careers. For example, they might be limited to those who have worked part-time in the previous five years and restricted to those with lower super balances, such as $300,000.”

The Institute is also opposed to removing the ‘work test’. “This change is undesirable because it does not serve the purpose of superannuation. Removing the work test for older Australians will do little to support genuine retirement savings, but will turbocharge tax planning for wealthy retirees.”

Up to 785,000 people to be adversely impacted by changes, in line with Government estimates

The Grattan Institute concurs with the Government estimates that the superannuation changes announced in the 2016 Budget will only adversely affect approximately 4% of superannuation account holders.

The Institute estimates that up to 785,000 people will be adversely affected by the changes, almost 4.2% of people with superannuation accounts, with 550,000 impacted by the reduced concessional contribution cap and lower Div 293 threshold.

ASFA estimates that 550,000 people will be affected by the changes to Transition to Retirement pensions, with 9% of super account holders to be adversely affected, are rejected “unreliable” and the result of double counting. The report says ASFA overestimated the number of people affected by conflating the number of TTR accounts with the number of people and by double counting by not accounting for people affected by more than one of the changes.

Super changes could save $1 billion a year if some spending measures dropped

The report notes that the Government’s proposed super measures are estimated to save $775 million in 2019/20, after accounting for new spending such as the LISTO. But an additional $305 million could be saved by dropping the carried-forward concessional contribution cap, retaining the work test and not changing the spouse tax offset.

“If these changes do not proceed, the budgetary savings from the government’s package would be boosted to about $1 billion a year in total.”

“In contrast, many amendments to the government’s package advocated by industry groups, such as watering down the limits on super tax breaks for high income earners that don’t need them, could easily result in a package that makes the budget position worse overall.”

“The paper shows that there is broad agreement between the Government’s proposals and the ALP’s policy. If the Government concedes on some of the details to get a deal with the ALP in the Senate, it will probably improve the budget position.”

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3 thoughts on “Only 4.2% of people will be adversely affected by Budget super changes”

  1. Can anyone assist???

    I know that a Superannuation Account balance can be made up with both Pre and Post Tax contributions. (I find the expressions deductible and no -deductible confusing OK.)

    But my account also independently grows (or shrinks) over time. For example my Super Account had a return of say 3.5%. So if my balance was $100,000 then over 12 months with no other contributions made by myself my. A,Anne becomes $103,500.

    But what of this $3,500 growth …. How is that factored into my overall balance when working out if I have reached my $500,000 post tax cap????

    Trying to workout if I have already reached my $500,000 cap would be a total nightmare. Since 2007 I have made many pre and post tax contributions, I have withdrawn ‘the lot’ and redeposited it, I have made other withdrawals and redeposits and I have had both positive and negative grow in my Super balance since 2007.

    How could anyone do a global calculation that only 4% will be affected by the $500,000 cap without a deep and personal analysis of individual Super Accounts since 2007. In my humble circumstances I have held Super Accounts with three different funds plus I have a small SMSF.

    Has someone really married up all those details of my deposits, withdrawals and interest/growth in my 4 Super Accounts since 2007 to see if I fall outside of this $500,000 cap???? Can that someone tell me today of I fall outside of this cap??? Don’t think so.

    Then what of the reliability of this 4%????

    1. Draft legislation hasn’t been released yet for the cap (and it probably won’t be included in the draft legislation released today), but based on what’s been announced it seems likely the $500,000 lifetime non-concessional cap will only count the non-concessional contributions at the time they are contributed. So it would include amounts re-contributed, without a reduction for the withdrawal, but not include earnings on those contributions. But we’ll have to see what is actually legislated.

      The ATO is able to provide information on non-concessional contributions made, but this should be checked against other records.

  2. If it is only 4% then the super changes should only impact on funds commenced after budget night this year. To indicate that funds set up prior to this date were rorting tax regs is fanciful at most or deliberately mischievous. SMSFs current at that time should be grandfathered.

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