Superannuation changes: Australians left with thousands of dollars less

AUSTRALIANS will be thousands of dollars worse off in retirement following the slowdown on compulsory super contributions.

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THE average Australian will be $19,000 worse off by the slowing of the compulsory superannuation guarantee, which will not come into full force until 2025.

Under the Coalition government, the superannuation guarantee — the percentage rate of compulsory superannuation contributions made by employers to workers — was frozen at 9.5 per cent in 2014 and will not rise again until 2021, when it begins incremental rises of 0.5 per cent.

It is not due to reach 12 per cent until 2025 — six years behind its original intended date of July 2019, set by the former Labor government.

Dr Martin Fahy, CEO of the Association of Superannuation Funds of Australia, said the slowdown of the rise to 12 per cent could end up costing Australians significantly.

ASFA chief executive officer Dr Martin Fahy said the slowing of the superannuation guarantee will impact Australians’ retirement savings.

“We recognise the fiscal imperatives that have caused it to be pushed out — there have been real trade-offs and global conditions that have made it difficult in terms of commodity prices and competing public policy priorities,’’ he said.

“This is one where we can make a real difference to the public purse in the long term by moving from the current phase where 20 per cent of people are self-funding, to a situation in 2035-2040 whereby half the population are in a position to be self-funding in retirement.”

ASFA figures show a 40-year-old with a super balance of $80,000 and earning $70,000 a year would have a balance of $456,000 at the retirement age of 67 — $19,000 less than had the scheduled superannuation guarantee rise to 12 per cent started now.

For a 30-year-old with a current super balance of $40,000 on a salary of $60,000, they would end up with $22,000 less with the ­delayed rollout of the guarantee, with a super balance of $515,000 once they retire.

Tribeca Financial chief executive officer Ryan Watson labelled the delayed rollout as “unacceptable” and “irresponsible”.

Tribeca Financial chief executive officer Ryan Watson says the slowdown on compulsory super contributions is “irresponsible.”

“It will leaving working Australians with a large superannuation balance shortfall when they retire,’’ he said.

HOW THE CHANGES AFFECT YOU

1 PRE -tax contributions into your super — such as compulsory employer payments, salary sacrifice and tax-deductible deposits — will be capped at $25,000 for everyone from July 1, a sharp reduction on the existing limit of between $30,000 and $35,000

2 IF YOU want to make voluntary after-tax contributions to your fund, the annual cap is dropping from $180,000 to $100,000, but you can bring forward three years of contributions to deposit a large lump sum ($300,000)

3 EMPLOYEES will enjoy the same flexibility as self-employed people by being able to make tax-deductible contributions at any time up to the annual $25,000 cap

4 IF YOU earn under $37,000 a year you will receive an extra government contribution — worth up to $500 and negating the 15 per cent super contributions tax. This new low-income superannuation tax offset replaces a similar scheme introduced by Labor

5 YOU can currently receive a $540 tax offset if you put $3000 into your low-income spouse’s super. The income threshold for spouses is $13,800, but this trebles to $40,000 on July 1, allowing many more people to access this tax incentive

6 HIGH earners with salaries of $250,000 to $300,000 will start paying an extra 15 per cent tax, lifting total tax on their super contributions to 30 per cent to bring them into line with those earning more than $300,000

7 PEOPLE over 60 who enjoy tax-free earnings and payments from their account-based pensions will be limited to holding $1.6 million in these accounts. The rest must be put back into regular super (15 per cent tax rate) or outside super

8 IF you have a defined benefit superannuation fund or pension, speak with your fund because different rules apply and they vary

9 TRANSITION-to-retirement pensions, which currently enjoy tax-free earnings, will be taxed from July 1, prompting people to question if they are still worthwhile

10 CATCH-UP contributions — which allow people to roll over and deposit up to five years of their unused cap on pre-tax (also called concessional) contributions — were announced in last year’s Budget but will not start until July 2018

HARD GRAFT AND FORESIGHT PAY OFF

BRYAN Raine, 65, and wife Trudi, 66, are completely self-sufficient in retirement.

Several decades ago, Mr Raine realised the pair wouldn’t be entitled to the age pension, and said he needed to be diligent in planning his retirement.

Last December, he quit a long career in the wool industry and said it was great to be financially comfortable after years of hard work.

“I was working for a European wool company and they had compulsory super, so I started putting in money away in the 1970s well before super became compulsory in Australia,’’ Mr Raine said.

“Whenever I got a bonus I was putting as much as I could into my super, because I knew I wouldn’t get any handouts and I wasn’t going to get any help. I had to look after myself.”

Retired couple Bryan Raine, 65, and his wife Trudi, 66. Picture: Tim Carrafa

The pair have two adult children and have made a sea change from Melbourne, now living at Mt Martha on the Mornington Peninsula.

Together they draw about $50,000 from their superannuation balance each year. Mr Raine happily admits he plays golf more regularly and they plan occasional holidays.

According to the ASFA retirement standard, couples need about $59,570 a year to live comfortably.