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With tax cuts grabbing most of the attention in the May 2018 Budget, some quiet tweaks to superannuation and retirement income were drowned out in all the noise. But these small changes could have a big effect on the amount of money that ends up in your nest egg when you retire.
The expansion of the Pension Loan Scheme will allow all Australians of Age Pension age to boost their income using the equity in their home. Under the scheme, retirees will be able to borrow up to 150 per cent of the Age Pension (currently 100 per cent), or $11,799 a year for singles and $17,787 for couples who are on the full Age Pension.
The loan is a reverse mortgage with an interest rate set at 5.25 per cent a year, about 1 per cent below the average commercial rate.ii The loan is typically not repaid until the home is sold and the Government guarantees that the debt can never exceed the value of the home. Currently, only part-pensioners can access the scheme.
In addition, all age pensioners will be able to earn up to $300 a fortnight in employment income, or $7,800 a year, without reducing their pension. This is an increase of $50 a fortnight and, for the first time, self-employed pensioners will also be eligible.
Recent retirees aged 65-74 with an account balance below $300,000 will be given an extra year to make voluntary super contributions without having to meet the work test.
Younger Australians at the start of their working life could also receive a boost to their retirement savings – of more than $500 a year in some cases.iii From July 2019, insurance premiums won’t be taken out of your super (unless you request it) if you are under 25, your account balance is less than $6,000, or you don’t make contributions for 13 months and the account is inactive.
While life insurance is not a priority and can eat away at small balances for many young, single people, the change will mean younger fund members with dependents will need to take extra steps to ensure they have adequate cover.
Younger members will also benefit from a 3 per cent annual cap on passive fees for account balances below $6,000 while exit fees will be banned on all super accounts.
The Government also hopes to reunite more people with their lost super by requiring super funds to transfer inactive accounts (where contributions have not been received for 13 months) with a balance below $6,000 to the Australian Taxation Office (ATO). The ATO will automatically reunite inactive accounts with active accounts where the combined balance will be at least $6,000.
At the other end of the scale, people who earn more than $263,157 from multiple employers will be able to exclude wages from certain employers from the Superannuation Guarantee (SG) from 1 July 2018. This will help employees avoid unintentionally breaching the $25,000 a year concessional contributions cap. Employees may then be able to negotiate with their employer to receive additional income taxed at marginal tax rates.
Self-managed super funds (SMSFs) will be able to add more members, with the limit increased from four to six members. This will give larger families the flexibility to include more than two adult children.
Well-run SMSFs will also be rewarded with a reduction in their administrative burden and compliance costs. Funds with three consecutive clear audits and annual returns lodged on time will be able to switch from annual to three-yearly audits from July 2019.
All these Budget measures are simply proposals for now and will need to be passed by both houses of Parliament. If passed, they should provide opportunities for many Australians to save more during their working lives to boost their income in retirement.
If you would like more information or if this has got you thinking about your retirement income strategy, give us a call.