Reduction in contributions cap

The Government has announced that it will reduce the cap on concessional superannuation contributions from $50,000 to $25,000 from 1 July 2009. The amount of the cap will be indexed annually thereafter.

The existing transitional cap for concessional contributions for those aged 50 years and over will also be reduced, from $100,000 to $50,000 from 1 July 2009. This reduced cap will apply for the next three financial years starting in 2009/10, after which the cap will be revert to the lower $25,000 cap (or applicable indexed amount).  The transitional cap will not be indexed.

As an aside, the ATO had previously announced that the concessional contributions cap would be indexed to $55,000 for 2009/10 and the non-concessional contributions cap indexed to $165,000.

However, in reducing the caps from 2009/10, it appears that the Government's announcement has overridden the Tax Office's indexation of those amounts for 2009/10 and therefore both the concessional and non concessional caps will be based on the lower amount.

Action

•    Accelerate concessional contributions prior to 30 June 2009 to utilise the higher caps

Non concessional caps

The non-concessional contributions cap will remain unchanged at $150,000 for the 2008/09 year and will remain at that level in 2009/10.

Thereafter, the non concessional cap will be calculated as 6 times the level of the indexed concessional cap.

Under the "bring forward" arrangements applicable from 1 July 2007, the annual non concessional cap can be averaged over 3 years to allow people under age 65 to accommodate a larger one-off contributions. This cap is effectively 3 times the non concessional cap, so will remain unchanged at $450,000 for the 2008/09 year and will remain at that level in 2009/10. Thereafter, the bring forward amount will be 3 times the non concessional contributions cap.

Temporary Reduction in Government Co-Contribution

Currently the Government has a superannuation co-contribution scheme in place where every $1 contributed in to a complying superannuation fund is matched by a $1.50 contribution by the Government.

This amount will be reduced as follows: 

• 150 per cent to 100 per cent for contributions made in the 2009 10, 2010 11 and 2011-12 income years, and
• 125 per cent for contributions made in the 2012 13 and 2013 14 income years. 
  

The maximum co-contributions payable will also be reduced accordingly to $1,000 for contributions made in the 2009 10, 2010 11 and 2011-12 income years. However this will be extended in the following tax years to $1,250 for contributions made in the 2012 13 and 2013 14 income years.  

It is also proposed that the co contribution matching rate and maximum amount payable will again return to 150 per cent and $1,500 for contributions made in the 2014 15 and following income years.

The co contribution income thresholds will continue to be indexed in line with wage increases.
 
Minimum Pension Drawdown

From 1 July 2009, the Government will halve the minimum amounts self-funded retirees have to draw down from their account-based pensions for 2009-10.

This extends the drawdown relief provided by the Government for 2008-09, recognising the impact of the global recession.



Transition to Retirement Pensions (TRP)

Surprisingly, there was no change to the existing rules.

The utilisation of a TRP strategy may lose some of its effectiveness post 1 July 2009, as the ability to make concessional contributions has been reduced.

Preservation age

The Government has released the report prepared by Australia's Future Tax System (AFTS) Review Panel into the strategic issues for the retirement income system.

One of the recommendations was gradually aligning the age at which people can access their superannuation savings (preservation age) with the increased Age Pension age

The transition to the higher Age Pension age will commence in July 2017, with the qualifying age increasing by 6 months every 2 years, to reach 67 on 1 July 2023.

Trans Tasman Retirement Scheme

The Government has indicated again that it has agreed to a Trans Tasman Retirement Savings Account with New Zealand.  The scheme will allow transfers of superannuation savings between Australian Superannuation Funds and New Zealand KiwiSaver Funds.

Under the existing Departing Australia Superannuation Payment regime, a New Zealand citizen cannot access their accumulated Australian superannuation benefits until they reach preservation age and trigger a condition of release.

Questions
Please contact Michael van Schaik, Associate Director, Employment & Remuneration Services. 
Phone: +61 (0) 3 8635 1835
Email: mvanschaik@moorestephens.com.au