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Big week for super
The long awaited government response to the Henry Tax Review was finally announced yesterday and the proposed changes for super were not as bad as we expected. For us personally, there was no extra benefit but I do think that it will benefit most Australians. Some of the main changes in government policies announced this week that might be of interest to SMSF trustees are:
- Super guarantee will increase from 9 to 12 per cent. I would say this is long overdue and I am glad it is finally done as 9 per cent is far too low. When Kingsley and I were working in Malaysia, mandatory contributions into super were in excess of 20%. Moreover, super contributions and earnings are not taxed at all. All super is contributed into a common fund managed by the government which does not charge any annual management fees. When we returned to Australia, we knew that contributing 9 per cent was not enough so we always contributed the maximum cap amount allowable which is currently $25,000 and that is already more than 12 per cent, so the new rules does not really change anything for us.
- Concessional cap for over 50s maintained at $50,000 permanently. However, this only applies for those with super balances under $500,000. This is considered “good news” but I wish we can go back to what we had before which was a cap of $100,000 for over 50s and there was no restriction on super balances. It is still better than $25,000 per year so I guess we should be happy.
- No more trailing commissions for financial products. Most retail financial products like super funds, loans and insurance pay up front and trailing commissions to financial advisers who recommend these products to their clients. The government will ban trailing commissions from 2012 but this rule will only apply to new products only. Trailing commissions will still be paid on the current products that you have now. However, you don’t have to wait until 2012 or switch products as you can get a portion of these trailing commissions back today by switching your adviser to a commission rebate specialist like Yourshare. More details on how to do this can be found on my previous blog post Get your fair share of commission rebates.
There are other tax benefits for those earning under $37,000 per year and you can now get the super guarantee up to age 74. I don’t know about you but I cannot imagine working a job until age 65 let alone 74! I guess the message is clear that the retirement age will be going up so the government can delay paying the aged pension as the aging population increases in Australia. For a full analysis of the latest changes to super, do visit Trish Power’s website or the tax reform website. Trish is the author of the book “Superannuation For Dummies” and many other books on super and investing.
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