Media Release: Shifting goal posts

Not as bad as expected, but …

Neil Howard, HLB Mann Judd Melbourne’s superannuation expert says that, as expected, the Federal Government’s Budget of 12 May 2009 made some changes to the superannuation system. He says that whilst the changes were not as widespread as the pre-Budget rumours indicated, they do spell bad news for some sections of the public.

Government co-contribution

“It is only a few years ago (in 2005/6) that the former Coalition Government doubled the co-contribution for eligible people, in recognition of the need to boost the superannuation savings of low income earners, says Mr Howard. “So it is disappointing to see the matching rate for the co-contribution being temporarily reduced from 150% to 100% from 1 July 2009, with a maximum matching co-contribution of $1,000.”

He says that whilst the reduction is said to be temporary and the maximum co-contribution has only been reduced by $500, the retirement plans of many low income earners will be badly affected due to the low superannuation balances of many of these low income earners.

Contribution caps

As part of the Better Super changes, from 1 July 2007 the former Coalition Government introduced a concessional contributions cap of $50,000 per annum (indexed) and a transitional 5 year cap of $100,000 per annum (fixed) for those aged 50 or more. The transitional cap recognised the common practice of people making larger contributions to superannuation, either from after-tax income or via salary sacrifice, as they approached retirement age.

The concessional contributions cap has been reduced from 1 July 2009 to $25,000 per annum, with a transitional cap of $50,000 per annum for those aged 50 or more. The transitional cap still only applies until 30 June 2012.

“Many people aged 50 and over have been planning to boost their superannuation savings over time, based on the old caps,” says Neil Howard. “The new caps mean that, for many, these plans will be thrown into disarray. As the transitional cap was fixed and not tied to the other cap, it would not have been difficult to maintain the transitional cap at $100,000 until 2012, or to extend the transitional period beyond that time.”

The non-concessional contributions cap was set at three times the concessional cap, i.e. $150,000. This will stay at that level for 2009/10, despite the previous announcement of it being indexed to $165,000. In future years, the cap will be six times the concessional cap, as indexed from time to time.

“On a positive note, despite this constituting a reduction to the cap in real terms, this change should not have a major impact,” said Mr Howard.

Pension draw downs in 2009/10

HLB Mann Judd Melbourne said the only good news for the superannuation system was a continuation of the reduction to the minimum draw down requirements for superannuation income streams.

“The minimum draw down for 2009/10 will remain at 50% of the legislated minimum, due to the current economic climate. This means that income stream recipients will not have to liquidate investments in the current depressed market in order to meet pension payments that may not be needed,” Neil Howard concluded.