MPR Superannuation Insights
Reduced concessional contribution cap
Under the current laws, taxpayers aged 50 and over at any time up to 30 June 2012, are eligible to make a concessional contribution of $100,000 per annum into superannuation. All other taxpayers are eligible to contribute up to $50,000 per annum into super.
From the start of the 2009-10 income year, the concessional contributions cap will be halved to $50,000 and $25,000 respectively.
The government will introduce special concessions for persons who are defined benefit fund members on 12 May 2009.
The government has ruled out any reduction to the non-concessional caps at this time. The cap will remain at $150,000 (indexed) and will now be six times the amount of the concessional cap for the 2009-10 income year and beyond.
Super co-contributions decreased
The superannuation co-contribution scheme will be temporarily reduced during 2009-10, and then scaled back to the former level of 150% in subsequent years.
The adjusted superannuation co-contribution rates from 1 July 2009 will be:
- 100% for 2009-10, 2010-11 and 2011-12, with a maximum co-contribution of $1000, reduced by 3.333 cents for each dollar by which the person’s total income exceeds the shade out threshold for receiving the full co-contribution
- 125% for 2012-13 and 2013-14, with a maximum co-contribution of $1,250, reduced by 4.167 cents for each dollar of total income above the shade out threshold and
- 150% from 2014-15 onwards, with a maximum co-contribution of $1,500, reduced by 5 cents for each dollar of total income above the shade out threshold.
Extension of 50% minimum pension draw down relief from 1 July 2009
In February 2009, the Government announced that individuals in account based pensions, allocated pensions and term allocated pensions will only be required to draw down half their calculated minimum requirement for the 2008-09 year. This has been extended for a further 12 months to 30 June 2010.
The minimum annual payment for an account-based pension is calculated as a minimum percentage of the account balance as shown below. These limits are based on the individual’s age at pension commencement date and at the start of each subsequent financial year.
| Age |
Minimum annual payment |
Minimum annual payment for 2008-09 as per regulations (announced 18 February 2009)* |
Minimum annual payment for 2009-10 as per Government announcement |
| Under 65 |
4% |
2% |
2% |
| 65-74 |
5% |
2.5% |
2.5% |
| 75-79 |
6% |
3% |
3% |
| 80-84 |
7% |
3.5% |
3.5% |
| 85-89 |
9% |
4.5% |
4.5% |
| 90-94 |
11% |
5.5% |
5.5% |
| 95 and more |
14% |
7% |
7% |
* Where a pensioner has already received more than the reduced minimum, the minimum payment will be the amount they have actually received. No refund will be allowed.
It is unclear whether the relief would extend to lifetime and fixed term defined benefit pensions in SMSFs.
A member commencing an account-based pension from 1 July 2009 can defer an annual pension payment (equal to 50% of the legislated minimum) to 30 June 2010. The next pension payment is not required to be drawn until 30 June 2011. This enables members to maximise the tax-free earnings in their pension by limiting and deferring pension payments where possible.
If a member wishes to fully commute or cash out their pension in 2009-2010, they will still need to draw down 50% of the pro-rated minimum pension amount prior to commutation. In addition, if the commuted amount is rolled over to a new pension, the member will need to draw down 50% of the pro-rated minimum payment in the new pension.
Transition to retirement pensions
The transition to retirement income stream cap remains at a maximum draw down limit of 10% per annum, based on the pension account balance on the day the pension is commenced. This is capped until the earlier of:
- The taxpayer reaching age 65;
- The taxpayer commencing permanent retirement; or
- The taxpayer becomes permanently incapacitated.
However, changes to the contribution cap may impact individuals who utilise strategies which combine salary sacrifice arrangements and Transition to Retirement pension income.
Under these changes, the concessional contributions cap will be halved from the start of the 2009-10 income year to:
- $50,000 for taxpayers aged 50 and over at any time up to 30 June 2012 who are eligible to make a concessional contribution, and
- $25,000 for all other taxpayers eligible to make a concessional contribution.
Taxpayers whose concessional contributions currently exceed $50,000 will need to ensure their strategy takes into consideration the new rules which come into effect 1 July 2009. Concessional contributions of $50,000 or less per annum will not be affected by the contribution cap change.
Changes to income definition for Commonwealth Seniors Health Card
Earlier this year, the government introduced legislation to include tax free pension income in the income test for the Commonwealth Senior Health Card. This was to take effect from 1 July 2009. This measure was intended to reduce the number of self-funded retirees who were eligible for the card.
The Government has now decided not to proceed with these changes. This will enable clients to take larger one-off super/pension payments in a particular year, without affecting their entitlement to the Seniors Health Card.
From 1 July 2009, salary sacrificed superannuation contributions will be included in the definition of income for eligibility assessment purposes.
Seniors Supplement for Self Funded Retirees
From 20 September 2009, approximately 300,000 self-funded retirees will gain access to the Seniors Supplement.
Self-funded retirees eligible for the Commonwealth Seniors Health Card or the Department of Veterans’ Affairs Gold card with the current Seniors Concessional Allowance, will receive the Seniors Supplement.
The Supplement will be $790.40 a year for singles and $1,190.80 a year for couples combined. Payments will be made quarterly.
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