No announcement to extend halving of the pension minimums for another year
From 1 July 2023
The government did not announce any extension of the halving of the account-based pension and term allocated pension minimum drawdown requirements, which have been in effect since 2019-20.
As a result, the minimum drawdown requirements are likely to revert to 100% of the standard minimum from 1 July for the following pensions (and annuities):
• Account based pensions
• Transition to retirement pensions
• Term allocated pensions.
Although the government could still announce an extension of the current halving of the minimum drawdown requirements for these pensions prior to the end of the year, given this wasn’t announced in the Budget it is considered unlikely.
No announcement to freeze the transfer balance cap at its current level
From 1 July 2023
In February 2023, it was confirmed that the Transfer Balance Cap (TBC) would increase by $200,000 to $1.9m on 1 July this year due to indexation. However, since February there has been some industry speculation that the government may freeze the TBC at its current level of $1.7m in the Budget – which did not happen.
While it’s still possible that the government could announce this before the end of the year, the fact it wasn’t announced in the Budget suggests the TBC will increase to $1.9m on 1 July 2023 as expected.
Given this, a person with a large super balance who plans to retire before 1 July 2023 and start their first retirement phase income stream, such as an account-based pension, may wish to consider delaying until 1 July 2023 to get the benefit of the full $200,000 indexation.
No announcement to allow legacy complying income stream products to be released
In the 2021/22 Federal Budget, the previous government proposed a two-year window to commute and roll the capital supporting certain complying income streams (including reserves) back into a super account in accumulation phase, allowing the member to then decide whether to commence an account-based pension, take a lump sum benefit, or retain the balance in the accumulation account.
The measure was proposed to affect:
• market-linked income streams (otherwise known as Term Allocated Pensions),
• complying life expectancy income streams, and
• complying lifetime income streams
that were originally commenced prior to 20 September 2007. The measure was expected to commence from 1 July 2023, however it was not legislated prior to the calling of the Federal election last year.
Requiring employers to pay their employees’ SG at the same time as their salary and wages
From 1 July 2026
The government has announced that employers will be required to pay their employees’ SG entitlements at the same time as their salary and wages. Currently, employers are required to pay their employees’ superannuation guarantee contributions on a quarterly basis.
The government says requiring employers to pay employees’ SG at the same time as their salary and wages will make it easier for employees to keep track of their payments and increase their overall retirement benefit.
For example, the government provides an example showing that a 25-year-old median income earner currently receiving their wages fortnightly, but their super quarterly, could be around $6,000 or 1.5 per cent better off at retirement.
The government also announced it will provide additional funding to the ATO in 2023–24 to improve its ability to identify and act on cases of SG underpayment by employers.
$3m total super balance tax
From 2025-26
The government has announced it will reduce the tax concessions available to individuals with a total super balance exceeding $3 million, from 1 July 2025.
Individuals with a total super balance of less than $3 million will not be affected.
This reform is intended to ensure generous super concessions are better targeted and sustainable. It will bring the headline tax rate to 30 per cent, up from 15 per cent, for earnings corresponding to the proportion of an individual’s total super balance that is greater than $3 million. This rate remains lower than the top marginal tax rate of 45 per cent.
Earnings relating to assets below the $3 million threshold will continue to be taxed at 15 per cent or zero per cent if held in a retirement pension account.
Interests in defined benefit schemes will be appropriately valued and will have earnings taxed under this measure in a similar way to other interests. This will ensure commensurate treatment.
Non-arm’s length expenses and non-arm’s length income
From 1 July 2023
The government has announced that it will amend the Non-Arm’s Length Income (NALI) rules for SMSFs and Small APRA Funds to limit the amount of income that will be taxed as NALI where a fund incurs a general fund expense that is less than market rate.
Currently, where a fund incurs a general fund expense under a scheme that is less than market rate, the non-arm’s length expense will have a necessary connection with all of the income derived by the fund in that year. As a result, 100% of the fund’s income, including exempt pension income and assessable contributions, will be treated as NALI and taxed at 45%.
Under the government’s proposal, the amount of the fund’s NALI due to incurring a non-arm’s length expense of a general nature would be limited to 2 times the level of the expenditure breach, calculated as the difference between the amount that would have been charged to the fund as an arm’s length expense and the amount that was actually charged.
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The government has also announced it will exempt expenditure that occurred before 2018-19 and that large APRA regulated funds will be exempt from the NALI provisions for both general and specific fund expenses.
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Disclaimer and Warning
The information above is of a general nature only. It should not be used as a source to make financial decisions. It’s also important to note that the legislation and figures related to this topic tend to change regularly and therefore the information above may not reflect the current status. We recommend that if you are looking for advice on this matter, you should contact us.
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