The Federal Budget has delivered in spades for the more mature in our population. Dubbed the “Baby Boomer Budget”, there are many changes being dished out, which are highlighted below.
Cash refunds on excess dividend imputation (franking) credits
The Coalition Government has ruled out any changes to the franking credits scheme, reassuring retirees and pensioners that any cash refunds they receive for excess dividend imputation credits will continue unchanged.
Changes to Self Managed Superfunds
From 1 July 2019 several changes will apply to self managed superfunds:
The maximum number of members allowed in a new or existing SMSF or small APRA fund will increase from 4 to 6 members. This will benefit larger families to pool their retirement funds.
SMSF’s which currently require an annual audit, will now be able to audit the fund every 3 years, providing they have a 3 consecutive year history of good record keeping, on time lodgement, and compliance. This will save SMSF’s considerably on audit fees.
Individuals with multiple employers whose income exceeds $263,157 will be able to nominate which employer’s wages are exempt from compulsory Super Guarantee contributions. The employee will be able to negotiate to receive extra income instead of the SG contribution by their employer.
Work Test Exemption
The Work Test currently requires individuals who are aged 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 Super. From 1 July 2019, the Government will introduce exemptions from the work test for voluntary contributions to Superannuation, which will be available for the following retirees:
- Those aged 65-74 years
- Those with Superannuation balances below $300,000
- Those who in the first financial year do not meet the work test. This exemption will be available for 1 year from the end of the financial year in which they last met the work test.
Existing annual concessional and non-concessional contribution caps of $25,000 and $100,000 respectively will continue to apply to contributions made under the work test exemption, and catch-up contributions are also allowed during the 12 months if applicable.
Retirement Income Framework
Superfund Trustees will be required to develop a strategy to help beneficiaries achieve their retirement income objectives, with the aim to provide a higher standard of living for retirees. Trustees will be required to offer comprehensive income products for retirement (CIPR’s), which would provide individuals income for life, no matter how long they live. New means test rules will come into play to take into account lifetime income streams from 1 July 2019, existing rules remain in place until then, and any lifetime retirement income streams or lifetime annuities purchased before 1 July 2019 will operate under current rules. New disclosure requirements will come into play, requiring providers to have standardised simplified information on retirement income products. Full details are yet to be developed and legislated but the proposed changes to assets and income tests are:
60% of the purchase price of a lifetime income stream is assessed as an asset until age 84, or after a minimum of five years. Thereafter 30% is assessed as an asset for the rest of a person’s life.
A fixed 60% of all lifetime income stream payments is to be assessed as income. Term and Account-Based income streams have no changes to means testing.
Pension Work Bonus
From 1 July 2019 pensioners in paid work will be able to earn an extra $1,300 a year without impacting their pension, and self-employed pensioners will be able to earn up to an extra $7,800 per year. A “personal exertion” test will be introduced to ensure the Pension Work Bonus is only available to those gainfully working and not receiving passive income such as investment property returns.
Pension Loans Scheme open to older Australians
From 1 July 2019, older Australians including full rate pensioners and self-funded retirees can use the equity in their homes to boost their retirement income by up to $11,000 for singles and up to $17,800 per couple, without impacting their eligibility for the pension or other benefits. Borrowers will still have the ability to repay the loan at any time or on the sale of their property, and fortnightly compounding interest will apply at a rate of 5.25%.
Superannuation Fund Fee, Insurance and Inactive Account Changes
From 1 July 2019, a 1.5% semi-annual cap on administration and investment fees charged by superannuation funds will apply on funds with account balances below $6,000, so if the account has a balance under this figure, the maximum fee a superfund can deduct for the following six-month period is 1.5% of the balance. It is expected the balances will be assessed on 30 June and 31 December each year.
From 1 July 2019 exit fees will be banned on all superannuation accounts making it easier for people to change funds without penalty. The ATO’s data matching process will also aim to reunite inactive super accounts with a member’s active super account. Accounts with balances under $6,000 which have been inactive for a continuous period of 13 months will be required to be transferred to the ATO so they can marry it up with the active account.
From 1 July 2019 insurance within superannuation will change from a default to an opt-in basis for members who:
- Have balances less than $6,000
- Are aged under 25 years
- Have accounts which have not received a contribution in 13 months and are considered inactive
This measure does not apply to ADF (Defence Force) or defined benefit members.
Income Test for Carer Allowance
From 20 Sept 2018, the Government will introduce a $250,000 annual income test threshold for the Carer Allowance and Child Health Care Card. Currently, someone who provides care to an individual with a disability or frail with age, can be eligible for a non means-tested Carer Allowance of $127.10 per fortnight and a Health Care Card. This will no longer apply to those whose household income exceeds $250,000.
If you need advice on how the changes may impact your superannuation or retirement plans, please reach out to your trusted PJT advisor for assistance.