Super Changes in the Budget

The government has announced major changes to superannuation in the budget this week.

For a full summary click here.

Note these have yet to be legislated, so we’ll have to wait to see what the senate will think of ScoMo’s ideas.

You can see where the government is coming from. They want to limit the damaging amount of tax concessions they are giving away to mainly older, wealthy superannuants. Unfortunately the damage was probably done years ago with the Costello million dollar caps.

What it means for the younger generations is less clear. Certainly the limit of a tax free pension of $1.6mil per person sounds generous in today’s dollars, but just wait 20 years for the spending power of that amount to be massively eroded by inflation.

Planning on making “catch up” super contributions once you’ve cleared your mortgage, or you sell Mum & Dad’s house? Think again. The limit on after tax contributions has been smashed. To make full use of pre tax caps you have to be able / willing to make contributions from a much earlier age to get enough in to create a 1.6mil asset base for that pension. With lower investment returns likely due to volatile global markets and very low interest rates, the heavy lifting will have to come from what you put in, not what you can earn on it once it’s in.

On a positive note, you can now make tax effective contributions for longer, to age 75, which should encourage a few to stay in the workforce.

The spouse contribution threshold is now more realistic, up to $37,000 of spouse income before you are unable to claim a tax offset for contributing.

All in all, yet more super changes in the budget will make super less attractive, and you should ask your adviser about other tax effective investment structures, like trusts and bonds.