Budget 2014 – Superannuation Changes

Infrastructure Investment:

The Federal Government will remove impediments to assist State Governments privatise assets, which may help support superannuation investment in brownfield assets. Superannuation is considered to be an ideal match for the risk-return profile offered by infrastructure as the industry matures from one of accumulation to income streams with long term income producing assets.

Industry Super Australia has suggested this might lead to an extra $15 billion of investment invested by industry super funds. ASFA estimated the initiative would raise investment from all APRA regulated superannuation funds from $70 billion currently to $200 billion by 2025.

ASFA noted that the Federal Government failed to announce any additional changes to infrastructure financing, particularly in respect of a long term infrastructure project bond market to help stimulate further investment.

Access to Age Pension Increased to Age 70:

The 2014 Budget calls for the raising of eligibility for the Age Pension to age 70 by 2035, impacting all those born after 1965.  This is almost 20 years earlier than recommended by the Government’s Commission of Audit which had recommended raising the eligibility age to 70 by 2053.  The Actuaries Institute has calculated that the cost of the Age Pension would rise from the 7.6 per cent of GDP (2010 figures) to 13.3 per cent of GDP in 2050 unless this change is made.

While the Government has announced its decision, the superannuation industry is debating the merits and consequences further.  There is particular concern where current preservation age limits commence at an earlier age, recognising that if superannuation is available at an earlier date, superannuation becomes an interim funding measure before the Age Pension will be accessed.

Research by the AIST points to the cold hard facts that around 40% of all Australians retire due to ill-health, suggesting many will simply move to the Disability Support Pension.  ASFA has suggested the health status of older workers would need to be taken into account, with initial estimates suggesting up to 50% of those aged 67-69 likely to be accessing the Disability Support Pension, or Newstart Allowance potentially negating any savings from increasing the Age Pension eligibility age.

Delay in further increases to Superannuation Guarantee (SG) Limits:

The previously legislated increases to SG payments will be frozen from 1 July 2014, at the new level of 9.5%.  It will remain at this level until 30 June 2018, before increasing in 0.5% increments up until 2022/23 when it will reach 12%.

Changes to Pension Asset and Income Tests & Pension Increases:

The government has announced that all pension asset test and income test thresholds will be fixed for three years from 1 July 2017. From 1 July 2017, the government will link pension increases only to inflation rather than 25% of  AWOTE (average weekly ordinary time earnings.)  Untaxed superannuation will also now be included in the income test for new recipients of the Commonwealth Seniors Health Card.

Budget measures will require a series of negotiations before bills can pass the Senate into law, and it is anticipated that some of this year’s Budget  announcements will be subject to amendment, or delay given community and industry concern.

 

 

 

 

 

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