By Kymberlee Naumann

The recent Budget announcements by our current government may have happened in the blink of an eye, but can serve to have far reaching consequences on many. Overall the Federal Budget was a solid effort, with the focus on getting the country to live within its means by cutting $34 billion and returning to surplus. However, if you are in small business, or big business, or approaching retirement, you have been slugged.

Superannuation, in this budget, has been used as a ‘cash cow’ to be milked to meet deficits. The government has again confirmed that it is willing to use retirement savings to pay for other political objectives. This is the ninth time since 2008 the government has changed the rules, equating to $7.8 billion less in retirement savings. These are the same politicians that have avidly stated that our superannuation system is wonderful and allows us to save for our own retirement so as to take the pressure off government age pensions. The message is being sent that super savings are at risk from constant government tinkering.

The budget announced that the start date of the higher concessional contributions cap measure would be deferred by two years, from 1 July 2012 to 1 July 2014. This two year deferral means that Australians will only be able to make concessional contributions of up to $25 000 per year. The original proposal would have allowed individuals aged 50 and over, with an account balance less than $500 000, to contribute up to $50 000 in concessional contributions. It is worth remembering that three years ago this contributions cap was $100 000 for an individual aged 50 or over. The cap has effectively been reduced by 75%. This reduction, and subsequent deferral, could be a huge disadvantage to Australians aged over 50 who are trying to save for retirement.

Although disappointing, such a deferral is understandable based on the administrative complexities of introducing the new cap in the original time frame. The government has estimated that the savings resulting from this amended cap are worth $1.46 billion over two years, which equates to approximately $8.5 billion less in savings for retiring Australians.

The message from this budget announcement to everyone, especially those aged 50 and over, is to carefully watch your salary sacrifice arrangements. The $25 000 contribution limit includes superannuation contributions your employer makes on your behalf as part of their 9% Super Guarantee obligations, together with any salary sacrifice arrangements in place. The table below shows how much you can salary sacrifice at various income levels after taking into consideration employer super guarantee:

Before considering any salary sacrifice strategy, it is important to take into account other income, if any, to ensure you meet your objectives for income and tax. If you are expecting a salary increase or a change in employment during the year, this could affect the total amount you contribute.

Standard excess penalty tax will apply for concessional contributions exceeding the $25 000 per annum limit. That is, 31.5% tax will be payable in addition to the 15% contributions tax on all concessional contributions made during the year. This could negate any tax benefits you may receive via your salary sacrifice strategy.

The government also announced that from 1 July 2012, the tax on superannuation contributions by individuals with income greater than $300 000 will double from 15 per cent to 30 per cent, excluding the Medicare levy. Although this is only designed to impact on a little over 1% of the population, it can act as a further disincentive to save for retirement.

Legislated superannuation changes announced prior to the budget but mentioned in the budget include:

* Superannuation Guarantee (SG) contributions and eligibility. Currently employers are obliged to make contributions of 9% of an employee’s salary to superannuation where the employee is under age 70. Legislation has now passed to increase the SG rate from 9% to 12%, in incremental stages, by 2020, effective 1 July 2013. The eligibility age for employer SG contributions will be abolished from 1 July 2013. In other words, SG contributions will extend to all workers regardless of age. The intention of this change is to provide an incentive for older working Australians to remain in the workforce longer.

* Effective 1 July 2012, a contribution rebate of up to $500 (not indexed) will be payable to workers with adjusted taxable income of less than $37 000.

* Individuals may be eligible for a refund of excess concessional contributions of $10 000 or less in a year, commencing this financial year 2011/12. This relief is available as a ‘once-off’ option and only where the individual has not previously exceeded the concessional cap.

* The Government has announced it will reduce the matching rate and maximum payment of the co-contribution payment from 1 July 2012. The matching rate for the existing co-contribution is to reduce to 50%, with the maximum co-contribution payment reducing from $1000 to $500 for those people who earn less than $31 920. The cut out threshold will also reduce to $46 920 from $61 920. Accordingly, this is the last financial year to access the higher $1000 payment.

Australians are arguably becoming wary of the superannuation system given the myriad of changes over the past five years. While the changes to superannuation have been widely discussed over recent years, three out of four people still do not fully understand the changes, nor what impact these changes will have on their personal situation. The amendments to superannuation are far reaching. They affect not just pre-retirees and retirees, but a wider age group of people who may be thinking about how superannuation could suit them, or even whether they should make additional contributions to superannuation at all.

To make sure you fully understand how these changes can impact on you personally, feel free to make an appointment with one of our specialist staff to discuss your situation.