Supercharge Your Super

The Federal Government has announced some major changes to super that could make a big difference to your retirement savings. The changes could add tens of thousands of dollars to your retirement nest egg.

Industry SuperFunds have advocated for many years to secure these changes to improve members' super. The changes set superannuation up for the future and will make it much easier to meet your retirement income goals. Many of the proposed changes are part of the broader tax reforms announced by the Federal Government.

What are the super changes and when do they take effect?

The new super changes include:

Many of the super changes are part of a broad package of tax reforms proposed by the Government. None of the changes have yet been through Parliament and all have a number of stages to go before they become law.

However the anticipated dates are as follows:

July 2012

• new $500 low income tax break
• more flexible contributions for over 50's
• ban on commissions and new rules for financial planners.

July 2013

• higher superannuation guarantee
• guaranteed contributions for workers aged to 75.

How much of a difference will the changes make to my retirement payout?

The new superannuation measures could make a big difference to your retirement payout. Depending on your circumstances your payout could be boosted by more than 75 per cent.

The size of the increase will depend on a number of factors including:

• your income
• your age and how many years until you retire
• whether you currently pay commissions on your super (industry funds do not pay commissions).

Modelling released by the Federal Government indicates that the increase in the Superannuation Guarantee to 12 per cent will significantly increase the future retirement incomes for many Australian workers. For example, a 30 year old earning average full-time wages will have an additional $108,000 in retirement savings.  

Supercharge your Super Calculator

Industry SuperFunds have developed a simple calculator that allows you to estimate how much the proposed super changes will supercharge your super.

*Assumptions and Disclaimers apply.

Increasing the Super Guarantee (SG)

More for your retirement savings

• Guaranteed contributions to your super will gradually increase from 9 per cent to 12 per cent between 2013  to 2019;
• It will significantly increase the future retirement incomes for many Australian workers;
• Around 8.4 million workers are expected to benefit from this measure.

Why 12 per cent?

• The current Superannuation Guarantee (SG) contribution rate is 9 per cent;
• A contribution level of 12 per cent is considered the minimum necessary to fund a decent retirement income;
• For someone on average earnings a 9 per cent contribution rate will only deliver a retirement income worth just over half of your pre retirement income – it's just not enough;
• With 12 per cent guaranteed contributions a 30 year old earning average full time wages will have an extra $108,000 in retirement savings;
• With the increase in the SG as your wages grow so too will your contributions;
• The increase is expected to boost the pool of superannuation savings by around $500 billion over the next 25 years;
• There is a phased increase to minimize the impact on employers.

The schedule to increase the superannuation guarantee rate from 9 to 12 per cent

New tax break for low income and part time workers

This measure will provide a superannuation contribution of up to $500 annually for individuals on adjusted taxable incomes of up to $37,000. The new measure will benefit many low income earners, particularly part-time workers and women.

Background

Around 3.5 million Australians on lower incomes don't get a tax break on their super contributions compared to their wage income – that is unfair.

How will it work?

• The amount payable under this measure will be calculated by applying a 15 per cent matching rate to the concessional contributions made by or for individuals on adjusted taxable incomes of up to $37,000, with an annual maximum amount payable of $500;
• The amount will be paid into a superannuation account of an individual to directly boost their retirement savings;
• Concessional superannuation contributions made from 2012-13 will be eligible for the Government contribution. This will be paid in 2013-14.

More flexible contribution arrangements for over 50's

In recognition of the fact that many younger workers can't afford to make extra contributions to super , mature age workers aged over 50 will have more flexibility to make catch up contributions.

The measure will enable those with lower superannuation savings, for example women with broken work patterns, to make additional 'catchup' contributions close to retirement.

How will it work?

• Currently individuals aged under 50 can only make concessional contributions of up to $25,000 a year before incurring extra tax;
• For individuals aged over 50 there is a transitional cap of $50,000 which was due to expire from 1 July 2012;
• In its place there will be a permanent separate higher concessional contributions cap of $50,000 (indexed) for those aged 50 or over who have total superannuation balances of less than $500,000;
• Eligible individuals under the age of 75 will still be able to make non-concessional contributions to superannuation up to $150,000 per year;
• Those who are under 65 can also bring forward two years' worth of non-concessional contributions, allowing them to contribute up to $450,000 of non-concessional contributions in any three year period.

This measure will take effect from 1 July 2012

Higher age limit for guaranteed contributions

Older workers will be able to receive guaranteed employer contributions for the first time by raising the Superannuation Guarantee (SG) age limit from 70 to 75.

• Workers aged 70 to 74 will be eligible to have SG contributions made on their behalf for the first time;
• The new SG age limit will now match the age limit for voluntary and self employed contributions.

This measure will commence from 1 July 2013.

Increasing the SG age limit will provide an incentive for mature workers to remain in the workforce and grow their superannuation further.

Guaranteed contributions are currently worth 9 percent of wages but this will increase to 12 per cent in line with the higher guaranteed contributions measure.

Reforms to financial advice

The Government has announced far reaching reforms that will change the way Australians access and pay for financial advice. The changes will reduce the cost of advice and remove hidden fees that can reduce your super.

What are the changes?

The Government has announced a number of changes to financial advice including:

• A prospective ban on sales commissions and payments to financial planners from product providers;
• A legal requirement that financial planners act in the best interests of their clients;
• 'Opt in' clauses to ensure you only receive and pay for financial advice if, and when, you want it;
• Removing incentives for financial planners to 'gear' investments; and
• Greater capacity to access financial advice through your super fund.

What are the benefits?

The changes will bring a range of benefits for consumers including:

• Removing conflicts of interest which might influence a financial planner to recommend a specific product;
• Increase the transparency of advice and bring down its cost;
• Remove payment arrangements such as trailing commissions and ongoing percentage based fees for advice that can eat away at your super;
• Make financial advice simpler to access (such as online through your super fund and online).

How do the super measures relate to the other tax reforms?

The Government announced the changes to superannuation as part of a broad package of tax reforms. You might have heard about some of these changes, including the proposed Minerals Resource Rent Tax (MRRT - previously known as the Resources Super Profits Tax or RSPT).

What are the changes?

The Government has decided to change the way that mining companies pay tax so that they pay a greater share when mineral prices (and their profits) are high.  The Government has said it will then use this extra revenue to pay for three key measures:

• Better superannuation;
• Lowering company taxes across the board; and
• Building new infrastructure such as roads and ports to sustain future economic growth.

The Government has said these measures won't proceed unless the MRRT is implemented.

Will the MRRT hurt my super?

You might have heard claims suggesting the proposed MRRT will hurt your super – this is unlikely to be the case for a number of reasons:

• The super measures in the package are worth much more to you than any direct impact of the MRRT on mining shares held by super funds;
• Mining shares only make up a small proportion of your super investments;
• The company tax cuts will have a positive impact on other investments in your super fund; and
• Independent economic modeling suggests the overall impact of the reforms will increase economic growth and wage growth (both of which have strong positive impacts on your super balance).

So far there is little evidence to suggest that mining stocks have been badly affected. In actual fact mining stocks have outperformed the general stock market by around 2 per cent since the Government's announcement.