The federal budget plays a crucial role in shaping various aspects of the economy, including superannuation. In the Federal Budget 2023-24, several measures have been introduced that impact superannuation in Australia.
In this article, we will delve into the key items in the current budget and explore how they will affect superfunds and retirement funding. Additionally, we will provide valuable tips on how individuals can build their superannuation accounts effectively in preparation for retirement.
Changes in the Federal Budget 2023-24
Increase in SG Rate
One of the significant changes in the budget is the gradual increase in the Superannuation Guarantee (SG) rate. Currently set at 10.5 per cent of the gross super salary , the SG rate is turning to 11 per cent effective 1 July 2023. This means that employers will be required to contribute a higher percentage of their employees’ earnings into their superannuation accounts.
This increase aims to provide individuals with a more substantial retirement savings base. The objective is to gradually raise the SG to 12 per cent by the end of FY25.
No More Reduced Drawdowns
The federal government is scrapping the 50 per cent minimum account-based pension (ABP) drawdown rates on 30 June and restoring the pre-pandemic settings the next day.
The drawdowns are set by specific age categories. For people under 65 years old, for example, the pandemic-level drawdown of 2 per cent is back at 4 per cent and people at least 95 years old will have their drawdowns back at 14 per cent instead of 7 per cent under the current budget.
The government also laid down the 2024 Budget with plans to draft legislation mandating employers to pay supers alongside the regular weekly salary starting 1 July 2026, doing away with the current practice of allocating the SG every quarter.
More ATO Teeth
The 2024 Budget will have $40.2m in allocations for the ATO to create a new detection/compliance regime for unpaid supers and expedite recovery of any unpaid SGs. Officials rationalised that releasing SG payments on payday can help retirement outcomes for 8.9m employees while employers will have fewer payroll liabilities to deal with.
Consider this: some Aussie employers avoided paying $33 billion in SGs over the past seven years and Industry Super Australia noted that the ATO has only been able to recover around 15 per cent of that amount.
Lower Tax Concessions
The upcoming Federal Budget will reduce tax concessions for people whose total super account balances at the end of the fiscal year are at least $3m; defined benefit accounts are also covered in the new rule. The plan, starting 1 July 2025, is to impose a 30 per cent tax on any interest accrued on balances above $3m, while the 15 per cent tax on balances under $3m remains.
No penalties are to be imposed in retirement pension accounts. The higher tax is projected to only affect an estimated 80,000 super account holders.
The new Federal Budget also programmed a set of higher caps for super contributions.
For a low rate cap, the limit was upped to $250k from $230k. The untaxed plan cap is now topped at $1.705m from $1.65m, and the Transfer Balance cap goes up from $1.7m to $1.9m. However, the latter will not apply to people who opened a new retirement account before 30 June 2023 and can be viewed by accessing myGov.
Remaining the Same
Some parts of Australia’s superannuation regime have been retained under the Federal Budget. Federal Treasurer Jim Chalmers was non-committal on whether super will be part of Commonwealth Parental Leave Pay. The Low Income Super Tax Offset (LISTO) stays at $37k.
Tips to Build Superannuation Accounts before Retirement
The earlier you start contributing to your superannuation account, the more time your money has to grow through compounding returns. Begin contributing as soon as possible to maximise the benefits of long-term investment growth.
Take Advantage of Salary Sacrifice
Consider salary sacrificing a portion of your income into your superannuation account. This arrangement allows you to contribute pre-tax dollars, reducing your taxable income while increasing your superannuation savings.
Review Investment Options
Regularly review and assess your superannuation investment options to ensure they align with your retirement goals and risk tolerance. Seek professional advice to make logical investment decisions.
Consolidate Superannuation Accounts
If you have multiple superannuation accounts, consolidating them can simplify management and potentially reduce fees. Learn the implications and seek advice to ensure it aligns with your specific circumstances.
Keep abreast of changes in superannuation regulations. Together with a financial professional, understand the evolving landscape to help optimise your superannuation strategy.
The Federal Budget 2023-24 introduces several measures aimed at enhancing superannuation and retirement funding in Australia. By following the tips mentioned above and staying informed, individuals can take proactive steps to secure a financially sound retirement.
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DISCLAIMER: This article is for informational purposes only and does not constitute official financial advice. The Australian Seniors Advisory Group has no relationships with any organisation or government office mentioned. Please consult your superannuation provider or a financial advisor.