2018/19 Federal Budget Summary (Superannuation and Retirement Update)
Friday, May 18, 2018 by Wakeful Partners |
On Tuesday the Federal Treasurer delivered the 2018/19 Federal Budget. There are a number of announcements in this budget that will impact on tax payers and retirees. As such we outline for you a brief summary of some of the relevant proposals that we believe you should be aware of.
If you have any queries in relation to the summary notes below or any other matters then please don’t hesitate to contact our office.
Work test exemption
From 1 July 2019 the Government will introduce an exemption from the work test for voluntary contributions to superannuation. This is available for the following retirees:
- aged 65-74,
- with superannuation balances below $300,000, and
- in the first financial year that they do not meet the work test.
The exemption will be available for 12 months from the end of the financial year in which they last met the work test.
The work test currently requires individuals who are 65-74 to have worked at least 40 hours within 30 consecutive days in a financial year before they can make a personal contribution to superannuation.
Existing annual concessional and non-concessional caps ($25,000 and $100,000 respectively) will continue to apply to contributions made under the work test exemption. Catch-up concessional contributions also remain permissible during the 12 months.
Capping passive fees for low balance superannuation funds
From 1 July 2019 the Government will introduce a 1.5 per cent semi-annual cap on administration and investment fees charged by superannuation funds on accounts with balances below $6,000.
If the balance of a member’s superannuation account is less than $6,000, the maximum amount of these fees that can be deducted from the account in the following six-month period is 1.5 per cent of the balance. Regulations will prescribe the dates on which trustees will be required to assess the balance of the account and thus eligibility for the cap. It is expected that these dates will be 30 June and 31 December. On 8 May 2018 draft legislation was released for these measures for consultation open until 29 May 2018.
Ban on exit fees and inactive superannuation funds
From 1 July 2019 the Government will ban exit fees on all superannuation accounts. It will also expand the ATO’s data matching process to proactively reunite inactive superannuation accounts with member’s active account where possible. Superannuation accounts with a balance under $6,000 and which have been inactive for a continuous period of 13 months, will be required to be transferred to the ATO to help accommodate this measure. On 8 May 2018 draft legislation was released for these measures for consultation open until 29 May 2018.
Insurance in superannuation
From 1 July 2019 insurance within superannuation will move from a default framework to be offered on an opt-in basis for members:
- with balances of less than $6,000,
- under the age of 25, and
- whose accounts have not received a contribution in 13 months and are inactive.
This measure does not apply to defined benefit members or ADF (Australian Defence Force) Super members.
On 8 May 2018 draft legislation was released for these measures for consultation open until 29 May 2018.
Increasing the maximum number of members in self-managed superannuation funds and small APRA funds
From 1 July 2019, the maximum number of members allowable in a new or existing self managed superannuation fund (SMSF) or small APRA fund will increase from four to six.
Preventing inadvertent concessional cap breaches
From 1 July 2018, the Government will allow individuals with multiple employers and whose income exceeds $263,157 to nominate that their wages from certain employers are not subject to the compulsory Superannuation Guarantee (SG) contributions. The employee could negotiate to receive additional income instead of the SG contributions from their employer.
Three-yearly audit cycle for some SMSFs
SMSFs currently require an annual audit. To reduce red tape for SMSFs with a history of good record keeping and compliance, the Government will change this to a three-yearly audit requirement.
This measure will start on 1 July 2019 and eligible SMSFs will be those where the trustees have a history of three consecutive years of clear audit reports and have lodged the fund’s annual returns in a timely manner.
Retirement income framework
The Government has announced it is developing a retirement income framework to increase flexibility and choice for retirees and help boost living standards.
Retirement income covenant requiring superannuation fund trustees
to offer Comprehensive Income Products for Retirement
The Government will introduce a retirement income covenant in the superannuation law, requiring trustees to develop a strategy that would help members achieve their retirement income objectives. This will focus the industry on providing a higher standard of living for retirees.
The covenant will require trustees to offer Comprehensive Income Products for Retirement (CIPRs): products that provide individuals income for life, no matter how long they live. Offering a CIPR would be a core part of how trustees implement the retirement income strategy developed for their members.
The Government is releasing a position paper for consultation shortly, outlining its proposed approach to the covenant. Once the covenant is legislated and the regulations finalised, the Government will ensure the industry has sufficient time to adjust before the legislation commences.
Means test rules for lifetime income streams
The Government has announced new means test rules for lifetime retirement income stream products. These rules provide clarity and certainty about the future treatment of lifetime products and create a foundation for the development of new retirement income stream products. The rules announced are proposed to come into effect on 1 July 2019 and the existing rules will remain in place until then.
The announcement confirms grandfathering under the current rules for all clients who purchase lifetime retirement income streams before 1 July 2019. This means retirees who have already purchased lifetime annuities, or purchase them between now and 1 July 2019, will continue to be subject to the current rules.
The proposed rules
- 60 per cent of the purchase price of a lifetime income stream is assessed as an asset until age 84, or a minimum of five years, and
- thereafter 30 per cent is assessed as an asset for the rest of a person’s life.
- A fixed 60 per cent of all lifetime income stream payments will be assessed as income.
- No change is proposed to the means testing of term and account-based income streams.
New disclosure requirements
The Government will also formulate a new approach to retirement income product disclosure rules that will require providers to report simplified, standardised information on retirement income products. The Government will consult on new disclosure requirements prior to implementation.