Changes to the super rules you need to know

This isn't so much a question of whether the rules will be changed but of how. Both the Coalition and Labor intend to curb the tax concessions for higher-income earners, though they are quibbling about how to do it.

May's budget set out the Coalition's measures, which are a mix of good and bad news, depending on your savings. Labor says it will not support the changes it deems to be retrospective, despite similarities to its own proposals.

Contributions

The Coalition will reduce, for everyone, the concessional (before-tax) contributions cap to $25,000 a year from July 1, 2017.

Currently you can make concessionally taxed contributions (employer contributions plus personal deductible contributions) of up to $30,000 or $35,000 depending on your age.

But there are a couple of sweeteners. First, the existing rules on who can and who can't make concessional contributions will be eased so that anyone under 75 can do so. That will give employees and retirees greater flexibility.

And if you have less than $500,000 in super you'll be able to "store unused contributions" for up to five years.

Financial consultant Strategy Steps uses the example of Jenny: she has $200,000 in super, takes maternity leave and uses only $10,000 of her concessional cap in 2017-18.

When she returns to work, she can carry forward the unused $15,000 and make concessional contributions of up to $40,000 in that year.

Low-income earners

While giving it a new name, the Coalition will also extend Labor's low income super contribution, which was due to end in 2017. Strategy Steps says the "new" low income offset will in effect provide a refund of up to $500 on the tax paid on concessional contributions made by people earning up to $37,000.

Higher-income earners

The Coalition will lift the tax rate on concessional contributions for those earning more than $250,000 (including super) to 30%. The higher rate currently applies to those earning more than $300,000.

After-tax contributions

You have been able make non-concessional (after-tax) contributions of up $180,000 a year.

This will now be subject (if the change is legislated) to a lifetime cap of $500,000. Colin Lewis, Perpetual Private head of strategic advice, says this cap will apply to all non-concessional contributions made since July 1, 2007, although if you're already over the cap you'll be able to leave those extra contributions in your fund without penalty.

But any contributions made in excess of the cap after May 3 will need to be withdrawn or be subject to penalty tax.

Big super accounts

The most controversial Coalition proposal is to limit the amount of super that can be transferred to a retirement or pension account to $1.6 million. This will affect both existing retirees and those still saving for retirement.

Lewis says people with more than $1.6 million in pension accounts have until July 1 next year to reduce their account balance either by rolling the excess back into the accumulation phase (where earnings will be taxed at 15% rather than being tax free in the pension phase) or by making a lump sum withdrawal if they are eligible to do so.

Other measures

The Coalition also intends to crack down on what it sees as the misuse of transition to retirement funds by removing the tax exemption on their earnings. They will be taxed at 15% from July next year.

Strategy Steps says combining these pensions with salary sacrifice will be less attractive.

On the plus side, the income limit for the spouse contribution tax offset will be increased from $10,800 to $37,000 from July 1. This offset allows one spouse to claim a tax offset of up to $540 if they contribute to their low-earning spouse's super account.

The "anti-detriment" payments, which in effect allow for a refund of contributions tax on the death of a fund member, will also be abolished from July 1 next year. Individuals in defined benefit funds will also be affected by the proposed changes.

Labor's plans

Labor says it will support many of the Coalition's measures but not where they are retrospective.

It has its own proposal to deal with big pension balances. It intends to limit the tax-free earnings of pension funds to $75,000 a year from July 1 next year with any excess to be taxed at 15%.

In practice, this will have much the same effect as the government's proposal as it will have an impact on those with pension funds worth more than $1.5 million.

Did you know?

About 36,000 women with less than $200,000 in super made concessional contributions of more than $25,000 in 2013-14.

The Wildcard

The election campaign. Enough said.

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