The following information is an overview of key areas which may impact superannuation in the coming year and beyond. Please note that all of these proposed initiatives are subject to legislation being passed. Full details of the proposals are not yet available, and we will provide you with full details and potential impacts when further details are made available.
1. Protecting your super
Measures will be imposed to protect your super fees. These include limiting fees charged by super funds, making insurance opt-in for some individuals, requiring super funds to transfer all low balance and inactive accounts to the ATO, and expanding the ATO’s activities to proactively re-unite lost and low balance accounts. These changes will take effect on 1 July 2019.
Passive fees capped, exit fees banned
The Government will introduce a three per cent annual cap on passive fees charged by super funds on accounts with balances below $6,000. There will be no exit fees charged if you leave your super fund, regardless of your account balance.
Removal of automatic life insurance
Insurance within superannuation will move from a default framework to an opt-in basis for members:
- with low balances of less than $6,000; or
- new members after 1 July 2019 under the age of 25 years; or
- members whose accounts have not received a contribution in 13 months and are inactive. A contribution can include a rollover from another super fund.
The measure is effective from 1 July 2019 and is intended to protect the retirement balances of young people and low income earners to avoid insurance premiums eroding their super balances and to also reduce the incidence of duplicated insurance cover if individuals are members of several super funds to avoid paying multiple insurance policies that they may not be able to claim on.
Accumulation account members on 1 April 2019 with insurance:
- with an account balances less than $6,000; or
- who are inactive members and who have not previously elected to maintain their cover, will have until 1 July 2019 to either, opt-in to keep their existing insurance cover or it will be cancelled.
We will contact you prior to 1 May 2019 if you are affected by this.
Reuniting you with your lost and inactive super
Super funds will be required to transfer all inactive superannuation accounts where the balances are below $6,000 to the ATO and who do not have insurance attached to the account.
The ATO is set to proactively reunite these inactive superannuation accounts with the member’s active account, where possible. This measure will also include the proactive payment of funds currently held by the ATO. It is anticipated that the majority of accounts transferred to the ATO will be reunited in the year they are received.
2. Retirement income framework
The government has made a number of announcements in relation to a new framework for retirement income.
The government will introduce a ‘retirement covenant’, requiring trustees to formulate a retirement income strategy for superannuation fund members. Trustees will be required to offer Comprehensive Income Products for Retirement (CIPRs)—products that provide income for life—however it will not be compulsory for individuals to take up a CIPR on retirement.
No commencement date has been indicated for this measure.
Standardised product disclosure metrics
The government will amend the Corporations Act 2001 to introduce a requirement for providers of retirement income products to report simplified, standardised metrics in product disclosure to assist customer decision-making.
No commencement date has been indicated for this measure.
Means testing for lifetime products
The government will amend the pension means test rules to encourage the development and take-up of lifetime retirement income products to address the risk that individuals may outlive their savings.
The new means test rules will apply to pooled income streams from 1 July 2019. The rules will assess a fixed 60 per cent of all pooled lifetime product payments as income. 60 per cent of the purchase price of the product will be assessed as assets until the age of 84 years, or a minimum of 5 years, and then 30 per cent for the rest of the person’s life. Pooled lifetime income streams purchased before 1 July 2019 will remain under existing arrangements (grandfathered).
Contributions work test: exemption for recent retirees
The Government will introduce an exemption from the work test for voluntary contributions to superannuation for people aged 65-74 with superannuation balances below $300,000, in the first year that they do not meet the work test requirements.
The work test exemption will apply from 1 July 2019 and is intended to give recent retirees additional flexibility to get their financial affairs in order in the transition to retirement.
3. Super guarantee — preventing inadvertent concessional cap breaches by employees
From 1 July 2018, the government will allow high income earners who have multiple employers and income in excess of $263,157 per year to nominate the exemption of superannuation guarantee (SG) payments from their wages for certain employers. Employees who use this measure could negotiate with their employers to receive additional income, which is taxed at marginal tax rates.
This measure is intended to allow eligible individuals to avoid unintentionally breaching the $25,000 annual concessional contributions cap as a result of multiple compulsory SG contributions.
Another measure to note:
Support for older Australians
The Budget includes a range of measures intended to support older Australians. While these do not specifically involve superannuation, they will have an impact on individuals’ income and/or financial situation in retirement. These measures include:
- an increase in earnings cap for the Pensioner Work Bonus from $250 per fortnight to $300 per fortnight. The increased Pensioner Work Bonus will enable pensioners to earn up to a threshold amount—now $7,800 per year—without it affecting their pension. Only the portion of a pensioner’s earnings over that threshold will be counted towards the age pension income test.
- expansion of the Pensioner Work Bonus to allow self-employed retirees to earn up to $300 per fortnight without impacting their pension.
- the Pensions Loans Scheme will be expanded to cover all Australians over Age Pension age, and to increase the maximum fortnightly income stream to 150 per cent of the Age Pension rate. The Pensions Loan Scheme effectively provides a reverse mortgage, to enable individuals to use the equity in their homes to increase their incomes. (Currently it applies to part and some nil-rate pensioners, allowing them to top up their Age Pension to the maximum rate. It does not currently apply to maximum rate age pensioners or self-funded retirees).
For more information call NGS Super on 1300 133 177, or to speak to a financial planner.
Last updated 9 July 2018.