The federal government has unveiled plans to tighten superannuation concessions for high-income earners, while at the same time attempting to give low-income workers more flexibility when it comes to saving for their retirement.
The government will seek to reduce access to generous tax concessions for wealthy individuals by introducing a transfer balance cap of $1.6 million on the total amount of superannuation that can be transferred pre-retirement.
This will be applied to both current retirees and those not yet in their retirement phase.
The government will also extend the 30% tax on concessional contributions to those individuals earning more than $250,000 and introduce from tonight a lifetime cap of $500,000 on non-concessional superannuation contributions.
Treasurer Scott Morrison will argue in his budget speech the changes will affect less than 1% of superannuation fund members.
The government will also reduce the annual cap on concessional contributions to $25,000, which Morrison will say will affect 3% of super fund members.
A Low Income Superannuation Tax Offset will be introduced to replace the current Low Income Superannuation Contribution, which is due to end on June 30, 2017.
The offset will give individuals with an adjusted taxable income of $37,000 or less a refund of the tax paid on their concessional contributions up to a cap of $500.
In a joint statement accompanying the budget papers, Morrison and Assistant Treasurer Kelly O’Dwyer said the government’s goal is to create a more sustainable superannuation system.
As part of this goal, the government will attempt to legislate a defined objective of superannuation, which is “to provide income in retirement to substitute or supplement the Age Pension”.
If passed, the standalone act will require any subsequent superannuation legislation is considered in the context of that objective.
More flexibility and choice for low-income workers and those who have time out from the workforce
In addition to altering the super contributions arrangements for wealthy individuals, the government used the budget to outline a plan to build more flexibility and choice into the superannuation system.
Restrictions will be lifted so that all Australians under the age of 75 will be able to claim a tax deduction for personal contributions to eligible superannuation funds up to the concessional cap.
The government will also allow individuals to carry forward unused concessional caps so individuals with super balance under $500,000 can make ‘catch-up’ contributions and will extend eligibility rules for individuals to claim tax offsets for contributions made to their spouse’s superannuation.
Restrictions that apply to the contributions made by individuals aged between 65 and 74 will also be lifted and the government will apply the same contribution rules to all people aged under 75.