Budget 2009 - Changes To Superannuation

By Sandy Naidu | May 14, 2009

A couple of significant changes to superannuation were announced in the 2009 budget. The first one was the reduction in superannuation caps (for concessional superannuation contributions). The second was the reduction in co-contribution amounts. Here is my detailed review about these changes and how they will affect us:

Concessional Superannuation Caps

Most of us have heard of salary sacrificing - you basically invest some of your pre-tax income into your superannuation. This way you pay less tax on your salary (as your gross income is now reduced). You pay 15% contributions tax for the amount that you invest in superannuation (the amount you salary sacrificed). Anyone can salary sacrifice (provided your employer allows it) but this method is more beneficial to people on the higher marginal tax rates. Currently if you’re aged over 50 your concessional contributions cap is $100,000 up until 30 June 2012 (i.e $100,000 in 2010 and 2011 together). For people aged under 50 the cap is $50,000. A lot of people aged over 50 have been either busily topping up their super or were planning to top up their super over the next two years.

In 2009 Budget it was announced that the cap on concessional super contributions for people aged under 50 will be reduced to $25,000 from $50,000 and for people aged above 50 it will be reduced to $50,000 from 100,000 until 2011-12. The cap will become $50,000 for all ages from July 1st 2012.

This change puts a lot of people in their fifties in a tight situation - especially if they were planning to retire early. This will also hit the small business owners and women quite hard. These two groups of people cannot always invest extra into super and usually increase their savings as they approaching their retirement. The $100,000 was attractive - the $50,000 cap is not large enough and will reduce the saving capability.

There is also an important lesson for people under 50 - plan to save for retirement over your entire working life, not just as you approach your retirement. The laws might change anytime - So your best bet is to save over the years.

Co-Contribution Changes

Currently if you are an employee, if you make a contribution to your super from your after tax income then the Government will co-contribute into your super. If your total income is $30,342 or less, the maximum co-contribution is $1,500. So the co-contribution is $1.50 for every $1 you contribute. Co-contributions reduce as your income increases, stopping completely for incomes of $60,342 or more.

In Budget 2009, the Government has announced that this co-contribution will be reduced to 100 percent. This is a temporary change only. It increases to 125 per cent for the 2013 and 2014 years, and goes back to 150 per cent from 2015. The maximum contribution for the next two years would now be $1,000.

This change will affect the middle income earners. It will limit their ability to boost up their super savings.

These two changes has definitely changed the attraction in investing in superannuation.

Share your thoughts about the super changes announced in 2009 Federal Budget.

Other Budget 2009 Posts:

Changes For Carers’ Income

Pension Income and Pension Age Changes

Paid Parental Leave

First Home Buyers Grant Boost

Tax Cuts
Budget 2009 Winners and Losers