TAX ON PENSION EARNINGS ABOVE $100,000
The coalition government has announced that they will not proceed with Labor's announcement which would have taxed people's superannuation pension earnings above $100,000.
This is good news for members with higher account balances.
The policy was declared by the previous government and was intended to target SMSF investors, rather than large super fund members. The calculation methods for testing the level of pension earnings were based on SMSF pension accounts, instead of pension accounts held in large super funds.
The Government said that the complexity and compliance costs associated with this initiative were “extreme and essentially undeliverable”. This is undoubtedly the right practical decision due to the complexity of the proposed tax, and the evidence that the people behind the introduction of the proposed tax didn’t fully understand how super funds in pension phase operate.
What was the planned pension earnings tax?
Australians who earned more than $100,000 on their superannuation pensions and annuities would have been taxed at 15 per cent. The threshold was going to apply to each individual rather than to each pension/income stream.
The government said it would improve the fairness and sustainability of the system, taking into account the rising population of seniors in the country since tax concessions for high-income earners were found to be too generous.
Who would have been affected by this planned pension earnings tax?
Any individual that had a high super fund account balance would have been affected by this planned tax.
Originally, the Government said this would only impact individuals with account balances of more than $2,000,000, but the planned reforms would have impacted more than 16,000 super fund members than planned, in particular with a set of transitional arrangements to deal with capital gains tax on fund assets.
The government said “An individual with $100,000 of tax-exempt earnings typically receives more government assistance than someone on the maximum rate of the single [person] Age Pension. This reform will help make the superannuation system fairer and more sustainable, and will help restore a number of the original intentions of the system.”
According to Treasury, around 16,000 individual would have been affected by this measure in the 2014/2015 year. If Treasury was basing this figure on the size of the account balance (and assuming 5% return) rather than the actual investment returns delivered on the account balance, then many tens of thousands more Australian retirees will be hit by this policy.
NO PENSION OR SUPERANNUATION UNTIL AGE 70
The government has denied plans to lift the pension age to 70 to meet the economic costs of the ageing population.
The axed plans have come as good news to the unions, who have been against this proposal, with ACTU president Ged Kearney saying “while life expectancy may have risen, the ability of Australians to continue to work in physically demanding jobs had not risen with it”.
''A strong superannuation system lets ordinary workers retire with security and quality of life and takes pressure off the pension system.''
The Combined Pensioners and Superannuants Association were also against the change, with senior policy adviser Charmaine Crowe saying “Lifting the pension age to 70 will force the least well-off to work till 70, while the better-off can enjoy their retirement at any age, thanks, in part, to the raft of tax breaks in superannuation from which they overwhelmingly benefit.”
What was announcement?
The government introduced a new proposal from the Grattan Institute which would double the pace the pension age climbs from 2017 onwards, lifting the access age by six months every year until it hits 70 in 2025. After that it would be progressively lifted further in line with increases in lifespan, with no ultimate limit.
Lifting the pension age to 70 would provide savings of around $150 billion over 50 years.
The government has said raising the eligibility for age pensions to 70 could be necessary to avoid a budgetary crisis due to Australia’s ageing population.
Who would have been affected the pension age increase?
The increase would have affected a large number of people, in particular low-income older people, manual labor workers, and women, which studies show generally have less savings than men.
For low income earners, they would be forced to work until 70, as they would not be able to afford to retire before then without the support of the pension.
Manual labor workers would have also struggled, as the physical requirements of the job would get too much over time, particularly for those closer to 70 years of age. This would mean they are forced to retire, and would have to live on the little savings, if any, they currently have.
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