The Gillard Government today announced a number of superannuation measures as part of the Mid-Year Economic and Fiscal Outlook.
Low income superannuation contribution
The Government's low income superannuation contribution (LISC) will make tax concessions for compulsory superannuation contributions fairer. Further changes announced to the LISC today ensure efficient delivery of the program and improve overall take-up of the program.
As the Government has previously announced, individuals earning up to $37,000 will effectively pay no tax on their superannuation guarantee (SG) contributions from 1 July 2012. Under the LISC, the 15 per cent contributions tax will effectively be refunded into their superannuation accounts.
Under the reforms announced today:
- The Government will streamline the LISC so that individuals automatically benefit from it without being burdened with extra paperwork. Rather than requiring eligible workers to fill out a tax return or other type of form, the Australian Taxation Office (ATO) will verify an individual's income using available data. This change will help low-income Australians who do not have to lodge tax returns, but qualify for assistance to boost their superannuation savings. This is particularly useful given that the increase in the tax free threshold from $6,000 to $18,200 from 1 July 2012 will free around one million low-income earners from needing to lodge a tax return.
- Individuals who receive less than 10 per cent of their income through employment or business will not be eligible. This is in line with eligibility criteria for the co-contribution.
- Individuals will only receive a payment if their LISC entitlement is at least $20, to reduce administration costs.
The net result of these changes is that an additional 100,000 individuals earning up to $37,000 will now receive the LISC, bringing the total number of low-income Australians who will receive a boost to their retirement savings to 3.6 million. This includes the superannuation savings of over
2.1 million women, which will be boosted by over $500 million in 2013-14 alone.
The LISC costs $1,888 million over the forward estimates in cash terms.
Superannuation co-contribution
The Government will reduce the matching rate and maximum payment of the voluntary superannuation co-contribution from 1 July 2012, when the new LISC commences.
The LISC will benefit over three times as many low-income earners as the current co-contribution, and is better targeted in boosting retirement savings.
This is because low-income earners can only access the co-contribution if they make additional superannuation contributions from their income or savings, whereas all low-income earners who receive compulsory SG contributions will automatically benefit from the new initiative.
This measure will provide savings of $660 million over the forward estimates in cash terms, which is around one-third of the cost of the low income superannuation contribution ($1,888 million over the forward estimates).
Concessional contribution caps
The Government will pause the indexation of the superannuation concessional contributions caps for one year in 2013-14, which will provide savings of $485 million over the forward estimates.
Overall, the Gillard Government will boost Australians' superannuation savings by the increase in the SG from 9 to 12 per cent, the LISC of up to $500 for low income earners, and higher concessional caps for individuals aged 50 and over who have less than $500,000 in superannuation.
In response to industry feedback, the Government will undertake further consultation on compliance cost issues raised by industry in relation to the higher concessional contributions cap for those aged 50 and over.