After all the talk, we finally got a look at the latest round of superannuation reforms.
While investors are interested in the changes, it’s worth remembering they aren’t law yet and the legislation still has to be passed in its current form.
The most widely publicised change is the 15% tax on superannuation assets generating earnings over $100,000 in pension phase.
Expect this to impact more than the highlighted balances of $2 million (assuming a 5% income stream).
Not long ago fixed income and cash returns exceeded 5%, the four banks and Telstra currently produce dividends over 5% and some property index funds have ten year distribution averages above 7%.
From 2024 realised capital gains will also factor into that $100,000, so the sale of a property within super, or combined with other income, could push a member over the limit in a specific year.
Concessional contributions caps have been raised, meaning from July 1 2013 those over 60 will be able to contribute up to $35,000 regardless of account balance, while the same will apply to those over 50 from July 1 2014.
Excess contributions above those caps will receive lighter treatment thankfully.
Members will have the ability to withdraw excess contributions and have them taxed at their marginal rate, with interest applied from the ATO, instead of being slugged at 46.5%.
The other significant change is the application of Centrelink deeming rates to superannuation monies in pension phase.
Account based income streams will be deemed the same as bank accounts, shares and managed investments, however this will only apply to new account based income streams from 1 January 2015.
In the end there appears to be some compliance nightmares and also welcome changes, despite concessional contributions caps still being below the $50,000 limit of a few years ago.
Clearly the 15% tax on earnings over $100,000 will provoke various strategies, long term super splitting with a spouse being the most obvious.
Finally, it seems the message is clear, plan to expect ongoing change because the most pressing risk to superannuation is now legislative risk.
Peter Mancell is a director of Mancell Financial Group and FYG Planners AFSL/ACL 224543, www.mfg.com.au This information is general in nature and readers should seek professional advice specific to their circumstances. Wondering who to trust with your financial affairs? We ‘re one of six fiduciary financial planners in Australia.
