The Federal Government is appealing to low-income earners and older workers through superannuation reform, with the employment guarantee to be lifted to 12% and its age restriction increased from 70 to 75 years of age.
The Government says it recognises these changes will affect wage negotiations, claiming this is why the first of these changes is set to occur roughly three years from now on July 1, 2013.
Additionally, Australians aged over 50 with super account balances of under $500,000 will be eligible to deposit a further $50,000 at concessional rates, with the Government emphasising the importance of retirement savings in the midst of an aging population.
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The increase in the superannuation guarantee will occur from July 1, 2013, with the first of two 0.25% raises to come on that date, with the second to occur on July 1, 2014. From July 1, 2015-19, the guarantee will be lifted by increments of 0.5%, resulting in the target 12% guarantee by the end of the decade.
The Government says this will provide an extra $108,000 in retirement super for the balance of a male worker aged 30 on average workers, with a female aged 30 on average wages to receive an extra $78,000.
While the Government is delivering a number of benefits to small businesses in its response to the Henry Review, it admits there will be difficulties for SMEs in adapting to the increased payments.
“The Government recognises that this affects wage negotiations between employers and employees and is providing a three year lead time before any changes start.”
The extra savings are set to generate an extra $10 billion in savings by 2020 and $35 billion by 2035.
Lower-income earners are also set to benefit from the changes, with the Government to introduce a contribution of up to $500 for workers with incomes of up to $37,000. It says this will ensure no tax will be paid on superannuation guarantee contributions for those with incomes up to that amount.
“Around 3.5 million Australians currently get next to no concession on their superannuation guarantee contributions or, worse still, have these contributions taxed more heavily than their normal income, due to the superannuation contributions tax.”
The Government will also introduce benefits for older workers, in an attempt to tackle the aging population issue. Firstly, the age restriction on the superannuation guarantee will be lifted from 70 years of age to 75, and extra benefits will be given for taxpayers over 50 years of age who want to make extra contributions.
The initiative will only apply to workers aged over 50 with super balances less than $500,000. Eligible workers will be able to contribute up to $50,000 in payments at concessional rates, doubling the current cap of $25,000 to be introduced on July 1, 2012.
The superannuation reforms will be some of the Government’s most costly. Increasing the guarantee will cost $250 million, the low income contribution will cost $830 million and the concessional contribution cap increase will cost $830 million. However, increasing the age limit on employment contributions will net $15 million by 2013-14.
“The Government’s changes will increase Australia’s pool of superannuation savings by $85 billion over 10 years.”
“A proportion of this savings pool will be channeled back into the Australian economy to fund jobs, infrastructure and growth. It is estimated that $284 billion of assets of superannuation funds and life offices was invested in Australian equities alone as at June 30, 2009.”