Recent media articles speculating on possible superannuation changes in the upcoming Federal Budget on 25 October 2022 have many questioning what they should be doing with their super before Budget night.
Pitcher Partners, and other professionals in the industry, are not aware of any specific changes that will be introduced and the consensus seems to be that significant super changes are unlikely at this time.
We recommend clients give careful consideration to any changes to their superannuation plans prior to Budget night. In our experience, if changes are made, there will generally be sufficient time to consider implications and adjust plans prior to any new changes commencing and with more detail on how those changes will apply to individual circumstances.
Some of the possible changes covered in recent media articles include:
Cap on individual super balances
There has been speculation the Government might cap the amount an individual can keep in some in the super industry are suggesting that a maximum super balance should be in the order of $5m.
Practically, we feel limiting the amount of capital an individual can keep in super would be difficult to implement. Capital values fluctuate over time and it may not be possible to withdraw super balances to comply with a maximum threshold as liquidity may not always be available. If the Government was to pursue a super limit or cap on individual super balances, it is more likely to do so by taxing super investment earnings above a certain threshold at higher rates.
We have no information that indicates a maximum super balance is being considered or is likely to be implemented by Government.
Maintaining the pension cap at $1.7m
The super pension cap limits the amount of capital that an individual can apply to one or more super pensions over their lifetime, thereby limiting super tax concessions available to them.
The maximum pension cap is currently $1.7m and is indexed to CPI increases. Rising inflation means the maximum pension cap would probably increase to $1.9m from 1 July 2023. There has been speculation the Government might intervene to maintain the pension cap at $1.7m.
We would advocate against this change, as it effectively represents an increase in super taxes in another form. This change would have no or limited impact on individuals already receiving super pensions as the pension cap is a lifetime limit and once used future indexation generally has no benefit.
Reduced super contribution limits
There has been speculation the Government might seek to reduce super contribution limits to remove further concessionality from the system.
We feel the scope to reduce the concessional contribution limit, currently $27,500 per annum, is limited as the compulsory super system can require employer contributions of up to $25,292 per annum. Compulsory contribution requirements will continue to increase in future years with indexation and wages growth so it would seem there is little room for the Government to move here.
The standard non-concessional contribution limit is currently set at four times the concessional contribution limit at $110,000 per annum. The current Government did take a policy of reducing the non-concessional contribution limit to three times the concessional contribution limit to the 2019 election. It is possible they may seek to reintroduce this policy, but if they did our expectation is the changes would apply from 1 July 2023 and the higher limit would continue to apply for the 2023 financial year.
Contributions tax increase
It is possible that contributions tax could increase from 15% to 30% if your ‘income’ is more than $200,000. Currently the higher contributions tax rate applies where income is greater than $250,000. Reducing the income threshold over which the 30% contributions tax rate applies was a policy the current Government took to the 2019 election which they may seek to reintroduce.
We will provide a comprehensive analysis following the Government’s Budget on major policy announcements and what it means for individuals and middle market businesses including any superannuation changes that might be announced.
If you would like further assistance in this area, please feel free to contact your usual Pitcher Partners representative.