Keep your super safe by watching these three policies closely

With a Budget due in May and a Federal election slated for this year it is important to be aware of the policy changes that may impact your savings. Here are three to keep a close eye on.

No need to worry - the government is unlikely to raid your super savings any time soon, particularly with a federal Budget due in May and an election expected sometime between July and October.

Here are three policies under discussion by the major parties that could impact your super savings, most particularly how you contribute. Keep a close eye on these policy changes to stay ahead of the pack.

1. A proposed tax increase on concessionary super contributions
There has been solid talk of a new measure in the Budget which will see people earning more than $180,000 paying a 30 per cent tax on their concessionary super contributions, up from the existing 15 per cent. The threshold for that tax hike is only reached at the moment by people with a taxable income of $300,000 a year, which according to the ATO represents around one per cent of taxpayers.

That cuts most of us out and if you’re retired, you’re probably allowing yourself a wry laugh. Very, very few retirees indeed earn that much from any source and anyway, the tax is only on contributions.

2. A reduction in the cap on your concessionary super contributions
What about the possible cut to the amount of money you can sock away on a concessionary, pre-tax basis every year? At the moment it’s $30,000 for people under 50, and $35,000 for people over that age. There have been whispers the government is considering cutting back those caps by $10,000 each but that is unlikely, for three reasons.

Firstly, those caps have been being messed around with since Wayne Swan was Treasurer, when he cut them back from $50,000 a year. The chorus of shouts from savers to “leave super alone” is getting louder.

Secondly, every change to super reduces our desire to save in that format.

That takes us to the third point. That is, that every move to reduce the amount of money being socked away by pre-retirees is going to increase the pension burden on the government, in the long term.

So it’s close to a zero-sum game.

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How do you feel about the cap on concessionary super contributions?

3. A tax on pension income streams above $75,000 a year
Labor has said that if it wins, it intends to bring in a tax on the income streams from super. That does constitute raiding the jar of people’s existing super, unlike anything the Coalition is likely to propose.

But again, normal mortals won’t have to worry: Labor is proposing imposing a tax of 15 per cent on any pension income stream above $75,000 a year. This means, if you are lucky enough to be collecting say $85,000 a year from your super, you would have to pay 15 per cent of $10,000. That’s $1,500 a year, which is a moderate tax burden in anyone’s language.

It is always a scary business when you see would-be and actual governments moving their tax collecting hand closer to that fabulous cookie jar of our joint $2 trillion-plus of retirement savings. But it’s also fair to say that any government that hasn’t got public opinion on its side, most particularly the opinion of Australia’s millions of retirees, will face a hasty exit from office if they try anything unfair.

Bear in mind, and our pollies certainly do, that since workers aren’t allowed to touch their super for decades while they’re in the workforce, it’s blatantly unfair to hit them up for tax in their retirement without giving them a decade or so warning in advance.  

On a brighter note, if Labor is elected, they too will bring down the $300,000 threshold for that higher tax on concessionary contributions to $250,000. As one hand takes away, the other one gives.

What does this all mean?
The government is well aware that superannuation is a deal between the saver and the tax authorities, whereby the saver gets certain concessions in exchange for not touching their super until they are at or close to retirement age. Any move to raid the cookie jar risks exploding that long running contract and we all know how irate voters behave at election time.

Which policies will you be keeping an eye on as the Federal election looms?  Join the conversation below.