2009 Federal Budget - Superannuation Changes

The Australian Government again showed a willingness to tamper significantly with the Australian superannuation system in the 2009 Federal Budget. This should result in expatriates considering very carefully their options in this regard - in particular whether to transfer funds into a system which may prohibit access until age 67, and to rely on tax advantages which may not stand the test of time. Some retention of funds offshore in structures which are tax effective and flexible, or onshore in structures outside superannuation, needs to be contemplated.

In very summary format below are the major superannuation changes announced in the 2009 Budget:

Concessional Contributions Cap

The Government announced that it would reduce the cap on concessional superannuation contributions from $50,000 to $25,000 with effect from 1 July 2009, with the cap amount indexed annually thereafter. The existing transitional cap for concessional contributions for those aged 50 years and over is also to be reduced, from $100,000 to $50,000 from 1 July 2009. The reduced cap will apply for the next three financial years starting in 2009/10, after which the cap will be revert to the lower $25,000 cap.

Note that the concessional contribution cap was scheduled to increase, as a result of indexation, to $55,000 for 2009/10 and the non-concessional contributions cap therefore to $165,000 (3 times the concessional). However, in reducing the caps from 2009/10, it appears the Government has dispensed with the promised indexation.

Non Concessional Caps

The non-concessional contributions cap, of particular importance to expatriates and migrants remitting their pensions to Australia, will remain unchanged at $150,000 for the 2008/09 and 2009/10 years. Thereafter, the non concessional cap will be calculated as 6 times the level of the indexed concessional cap. The existing "bring forward" arrangements in which the annual non-concessional cap can be can be averaged over 3 years to allow people under age 65 to accommodate a large one-off contributions will be remain unchanged - with a $450,000 cap for the 2008/09 and 2009/10 years. Thereafter, the bring forward amount will be 3 times the non concessional contributions cap and hence subject to indexation .

Transition to Retirement Pensions (TRP)

Changes to TRP's were expected in the budget but, rather surprisingly, none eventuated. However, the reduction in the maximum level of concessional contributions mentioned above is likely to reduce it's effectiveness.

Preservation Age

The Government has released the report prepared by Australia's Future Tax System Review Panel (otherwise known as the "Henry Review") into the strategic issues surrounding the retirement income system. One of the recommendations was to gradually align the age at which people can access their superannuation savings (preservation age) with the (newly) increased Age Pension age. The transition to the higher Age Pension age will commence in July 2017, with the qualifying age increasing by 6 months every 2 years, to reach 67 on 1 July 2023.

If moves are made to significantly increase the age at which individuals can access superannuation this may impact on any decision by expatriates to repatriate pension funds back into Australian superannuation. Most pension funds outside Australia often much greater flexibility around access to funds than a superannuation system which only supports full access at 67, or heavily taxes earlier access (as some commentators have suggested as an alternative).

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