The proposed changes that could have a big impact on your super

What changes might we see to super as part of the federal budget? Take a look at some of the recommendations made by a number of industry groups in their pre-budget submissions.

Each year individuals, businesses and community groups are invited to submit their views regarding priorities for the Federal Budget, and this year was no different. The pre-budget submission process for the 2021-22 Budget closed at the end of January and many of the submissions are available to view.

Superannuation is generally a hot topic at Budget time, so it is perhaps no surprise that a few of the submissions contain recommendations about the super system. Pre-budget submissions by the Association of Superannuation Funds of Australia (ASFA), the Australian Institute of Superannuation Trustees (AIST), and Australian Council of Social Service (ACOSS), for example, all contained proposed changes to superannuation.

Here is a selection of recommendations made in their pre-budget submissions.

Remove the $450 threshold

Both AIST and ASFA recommend removing the $450 per month superannuation guarantee (SG) threshold. The threshold essentially means if you earn less than $450 a month from one employer, you don’t get super.

In its submission, AIST pointed out that the cost to the government would be minimal and women and those on lower incomes would have a better retirement outcome if the threshold was abolished. It could also help the increasing number of people who have multiple jobs.

ASFA shares a similar view, with its submission saying: “In general terms, the existence of the threshold penalises low-income earners, permanent part-time workers, and those with multiple jobs who receive little or nothing in the way of SG contributions. The existence of the threshold affects roles predominantly performed by women, such as the caring professions, hospitality, retail, and cleaning.”

Begin taxing superannuation earnings post-retirement to help pay for aged care

One of ACOSS’s recommendations is that the government taxes superannuation fund earnings after retirement to help pay for aged care services. Currently if you’re retired and drawing a retirement income stream from your super, then you pay no tax on your investment earnings.

“It will not be possible for future governments to properly fund aged care and health services for an ageing population as long as only 16% of older people pay income tax. We need to choose between over-generous tax breaks for retirement, decent services, or a steep rise in out-of-pocket costs for health and aged care,” writes ACOSS in its submission.

ACOSS is suggesting that the 15% tax on fund earnings in the ‘accumulation’ phase should be progressively extended to the ‘pension’ phase over a three-year period from July 2021 (with a 5% increase each year).

“This should be offset by a 15% rebate (minus any imputation credits) for taxpayers over the preservation age whose income (including Age Pension, earnings, superannuation and other investment income) falls below the taxpayer’s tax-free threshold,” ACOSS added.

Extend the SG regime to self-employed people

If you are self-employed, you have no employer to pay super on your behalf and you are currently not required to make any contributions to your own super. ASFA said this has led to a disparity in retirement outcomes between the self-employed and wage and salary earners.

“Around 20% of self-employed people have no superannuation, and the self-employed typically have lower superannuation balances than employees,” writes ASFA.

As a result, ASFA recommends requiring self-employed people to make SG payments (on their own behalf), saying it would boost their superannuation balances and diversify their retirement savings.

“One potential mechanism for SG contributions is a scheme similar to the Medicare surcharge, whereby a surcharge amount is payable unless a minimum amount of taxable income is contributed to superannuation for the specific assessment period,” writes ASFA.

Pay SG at the same time as wages

Another recommendation made by ASFA is that the government require employers to make SG payments at the same time as wages. Currently employers only need to make the payments at least four times a year, so they are received by your employee’s super fund by the quarterly due dates – which are 28 October, 28 January, 28 April and 28 July.

ASFA pointed out that the Retirement Income Review Report observed that requiring employers to pay SG contributions at the same time as wages would make it easier for employees to monitor the SG compliance of their employer.

“It would also limit build-up of SG liabilities of employers. In effect, the policy change would reduce the terms of payment on SG liabilities from up to four months to potentially one week,” ASFA said in its submission.

Increase the LISTO threshold from $37,000 to $45,000

The Low Income Super Tax Offset (LISTO) is a government superannuation payment to help eligible low income earners save for retirement. According to the ATO, if you earn $37,000 or less a year, you may be eligible to receive a LISTO payment. The LISTO is 15% of the concessional (before tax) super contributions you or your employer pays into your super fund. The maximum payment you can receive for a financial year is $500, and the minimum is $10. If you’re eligible for less than $10, the ATO will round this up to $10, explains the ATO website. The payment is usually paid directly into your super fund after you lodge your tax return.

ASFA recommends the LISTO threshold be raised from $37,000 to $45,000 (being the threshold for the second tax bracket in 2020-21 and onwards). “If the upper threshold for LISTO was increased as proposed, a member on $45,000 with a concessional contribution of $4,500 (10% of $45,000) would be eligible for a LISTO of 15% of $4,500 = $675,” writes ASFA in its submission.

Of course, these are all simply recommendations and the government will not necessarily take all – or any – of these on board. We will have to wait and see.

Cover image source: Kunst Bilder (Shutterstock.com)