Summary of Superannuation Reforms

Announced by Government 5 April 2013

It is important to remember…That these announcements are to be delivered as part of this year’s Federal Budget.

It is unlikely that these announcements will be legislated before the September election.

General Advice WarningThe information provided in this presentation is general in nature, and as such it should not be relied upon for making decisions without seeking expert opinion or personal advice.

Paraplanning Network Australia Pty Ltd disclaims all and any guarantees, undertakings and warranties, expressed or implied, and shall not be liable for any loss or damage whatsoever (including human or computer error, negligent or otherwise, by one or more of the authorities, or incidental or consequential loss or damage) arising out of or in connection with any use or reliance on the information or advice in this presentation. The user must accept sole responsibility associated with the use of the material in this presentation, irrespective of the purpose for which such use or results are applied.

The information in this presentation is current as at 6th April 2013 and is no substitute for financial advice.

Summary of Changes• From 1 July 2014, change to tax on earnings within pension phase (including defined benefit

pensions)

• From 1 July 2014, special arrangements on capital gains in pension phase depending on the purchase date of the asset

• From 1 July 2013, concessional contribution cap of $35,000 for those age over 60 (extended to those age over 50 from 1 July 2014)

• Fairer treatment of concessional contributions in excess of the annual cap

• Normal deeming rules to be extended to superannuation account-based income streams for the purposes of the Centrelink income test

• Concessional tax treatment extended to deferred lifetime annuities

• Changes to the arrangements for lost superannuation

• Establishment of Council of Super Custodians

Changes to Tax on Earnings within Pension Phase Tax on earnings on super fund assets

Existing Situation Proposed Situation (from 1 July 2014)

In Accumulation Phase Earnings on super fund assets in accumulation phase are taxed at 15%

Earnings on super fund assets in accumulation phase are taxed at 15%

Supporting income streams (Pension Phase)

Earnings on assets supporting income streams are tax free

Fund earnings* tax free up to $100,000** a year. Earnings above $100,000 taxed at same rate that applies to accumulation phase (15%)

*Fund earnings include items such as: dividends on shares, interest on bank accounts and rental income on properties**The $100,000 threshold to be indexed to Consumer Price Index (CPI) and to increase in $10,000 increments.

Special Arrangements on Capital Gains in Pension Phase

Purchase Date of Asset Proposed Situation (from 1 July 2014)

Prior to 5 April 2013 The reform* will only apply to capital gains on assets purchased before 5 April 2013 that accrue after 1 July 2024

From 5 April 2013 to 30 June 2014 Individuals to have the choice of applying the reform* to the entire capital gain, or only that part that accrues after 1 July 2014

From 1 July 2014 The reform* to apply to the entire capital gain

*”The reform” = Fund earnings tax free up to $100,000 a year. Earnings above $100,000 taxed at same rate that applies to accumulation phase (15%)

Special Arrangements on Capital Gains in Pension Phase

As at 5 April 2013

Super fund owns asset

Before 30 June

2014

1 July 2024

The reform* will only apply to capital gains on assets purchased before 5 April 2013 that accrue after 1 July 2024

When an asset is purchased from 5/4/2013 to 30/6/2014, individuals have the choice of applying the reform* to the entire capital gain, or only that part that accrues after 1 July 2014

From 1 July 2014

The reform* to apply to the whole gain

Tax on Withdrawals

There are no proposed changes to the taxation on withdrawals from the superannuation

environment

Let’s look at fund earningsIn the release, the government mentioned:

“For superannuation assets earning a rate of return of 5%, the reform will only affect individuals

with more than $2million in superannuation assets supporting income streams”

The earnings rate

Super balance Earnings (%pa)

3 5 7 9 11 13 15

$500,000 15,000 25,000 35,000 45,000 55,000 65,000 75,000

$750,000 22,500 37,500 52,500 67,500 82,500 97,500 112,500

$1,000,000 30,000 50,000 70,000 90000 110,000 130,000 150,000

$1,250,000 37,500 62,500 87,500 112,500 137,500 162,500 187,500

$1,500,000 45,000 75,000 105,000 135,000 165,000 195,000 225,000

$1,750,000 52,500 87,500 122,500 157,500 192,500 227,500 262,500

$2,000,00060,000 100,000 140,000 180,000 220,000 260,000 300,000

The earnings rate within the fund will effect when the threshold is reached

What about Defined Benefit Pensions?

In the release, the government mentioned that there will be a:“Calculation of notional earnings each year for defined benefit members in receipt of a concessionally-taxed superannuation pension. Where a person's notional yearly earnings exceed the $100,000 threshold, the amount in excess of $100,000 will be subject to tax at a rate of 15%.”

Changes to Concessional Superannuation Contribution Caps

Age of member Existing Situation New Proposed Situation (from 1

July 2013)

New Proposed Situation (from 1

July 2014)

Below age 50 $25,000* $25,000* $25,000*

Age 50 – 60 $25,000** $25,000* Unindexed concessional

contribution cap of $35,000 pa

Age 60 or over $25,000** Unindexed concessional contribution cap of $35,000 pa

*Indexed annually with AWOTE and rounded down to the nearest $5,000. Indexation paused in 2013/14. **There was a proposed higher cap of $25,000 above regular CC cap for individuals age 50 or more with super balances below $500,000 from 1 July 2014. (This proposal to be scrapped).*The general concessional cap is expected to reach $35,000 from 1 July 2018.

Higher cap for balances above $500KFrom 1 July 2014, There was a proposed higher cap of $25,000 above the regular concessional contribution cap for individuals age 50 or more with super balances below $500,000.

This proposal to be scrapped

“The Government has decided not to limit the new higher cap to individuals with superannuation balances below

$500,000 in light of feedback from the superannuation sector that this requirement would be difficult to administer.”

Reforming the treatment of concessional contributions in excess of the annual cap

Existing Situation Proposed Situation

Concessional contributions in excess of the annual cap are effectively taxed at the top marginal tax rate (46.5%) rather than the normal rate of 15% and count towards the non-concessional contribution cap

Excess concessional contributions of $10,000 or less may be refunded and instead taxed at marginal rates for first time breaches on or after 1 July 2011

Individuals to be able to withdraw any excess concessional contributions made from 1 July 2013 from their super fund

Excess concessional contributions to be taxed at the individuals marginal tax rate, plus an interest charge (GIC)

Will have same effect as if the individual had received the money as salary / wages and chosen to make a non-concessional contribution

Treatment of non-concessional superannuation contribution caps

No announcement was made in relation to breaches of non-concessional contribution caps 46.5% penalty tax continues to apply to non-concessional contributions in excess of the cap

Deeming rules to apply to superannuation account-based income streams

Existing Treatment of Account Based Pension under Income Test

Proposed Treatment of Account Based Pension under Income Test

Income from Account Based Pension assessed using a formula:

AI – (PP – RCV) / RNOr where no account balancePP – {(PP – RCV) / RN} x Y

From 1 January 2015, standard deeming rules to apply to new superannuation account-based income streams assessed under pension income test

Existing products held by pensioners before 1 January 2015 to be grandfathered indefinitely and continue to be assessed under the existing rules for the life of the product

AI = Annual income (grossed payment received during year); PP = Purchase prices less any commuted amounts; RCV = Residual capital value; RN = Relevant number; Y = Years elapsed

Deeming rulesUnder the income test, financial assets such as bank accounts, managed funds and shares are deemed to earn a certain rate of income, regardless of the income actually earned.

Relationship Status

Threshold level Deeming rate on assets

Below threshold

Above threshold

Single $45,400

2.5% 4.0%Couple * $75,600 (combined)

Couple** $37,800 (each)

As at 20 March 2013* If at least one of you is getting a pension ** If neither of you is getting a pension

Extending concessional tax treatment to deferred lifetime annuities

“The Government will encourage the take-up of deferred lifetime annuities (DLAs) by providing these products with the same concessional tax treatment that superannuation assets supporting income streams receive. This reform to apply from 1 July 2014.”

Lost Superannuation“The Government has put in place a number of initiatives through the ATO to help reunite members with lost super accounts.”

From 1 July 2013, interest to be paid on all lost super accounts reclaimed from the ATO (at a rate equivalent to CPI inflation)

The inactive / uncontactable member account balance threshold below which these accounts are required to be transferred to the ATO to protect them from being eroded by fees and charges to be increased as follows:

$2,000 – Immediate$2,500 from 31/12/15 $3,000 from 31/12/16

Council of Superannuation Custodians

“The Government will establish a Council of Superannuation Custodians to ensure that any future changes are consistent with an agreed Charter of Superannuation Adequacy and Sustainability.”

“The Council will be charged with assessing future policy against the Charter and providing a report to be tabled in Parliament.”

Charter of Superannuation Adequacy and Sustainability

“The Charter will be developed against the principles of:» Certainty»Adequacy» Fairness» Sustainability

The Charter will clearly outline the core objects, values and principles of the Australian superannuation system”

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General Advice WarningThe information provided in this presentation is general in nature, and as such it should not be relied upon for making decisions without seeking expert opinion or personal advice.

Paraplanning Network Australia Pty Ltd disclaims all and any guarantees, undertakings and warranties, expressed or implied, and shall not be liable for any loss or damage whatsoever (including human or computer error, negligent or otherwise, by one or more of the authorities, or incidental or consequential loss or damage) arising out of or in connection with any use or reliance on the information or advice in this presentation. The user must accept sole responsibility associated with the use of the material in this presentation, irrespective of the purpose for which such use or results are applied.

The information in this presentation is current as at 6th April 2013 and is no substitute for financial advice.

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