Over-60s winners of new super proposal

by Sharna Paterson

May 10, 2006

Baby boomers may be retiring later than they hoped after Treasurer Peter Costello last night unveiled sweeping changes to superannuation in a bid to encourage senior Australians to remain in the workforce.

As of July 1st 2007, people receiving superannuation benefits as a lump sum or pension from taxed funds will not pay tax on those benefits after age 60.

The Federal Government will increase the assets threshold for pensioners, and abolish the reasonable benefits limits that imposed higher taxes on the retirement savings of the wealthy.

The plan is expected to cost $6 Billion over four years, and it will extend benefits to the self-employed, allowing them to claim tax deductions for all super contributions.

“This plan represents the most significant change to Australia’s superannuation system in decades,” Mr Costello said.

“It will sweep away the current raft of complexity faced by retirees, increase retirement incomes, give greater flexibility as to how and when superannuation can be drawn down and improve incentives for older Australians."

Reasonable benefit limits on superannuation will also be abolished and people will no longer be required to draw down on their superannuation once they stop working.

The scrapping of the Super Benefits Tax is in line with the Government's plan to keep baby boomers in the workforce longer, it has been claimed it would add about $37,000 to the retirement payout of people entering the workforce today.

Currently a person loses $3 of age pension a fortnight for every $1000 of assets above the assets test.

This is punitive, as retirees must achieve a return of at least 7.8 per cent on their additional savings in order to overcome the effect of a reduction in their age pension amount. Under the changes, the Government will reduce the pension assets test taper rate to $1.50 a fortnight for every $1000 of asset from September 2007.

"The proposal cuts through all the problems and it is the next great area of reform of our tax system," Treasurer Peter Costello said.

However, the new tax-free super rules will apply only to people aged 60 and over from July next year, which will put an end to many early retirement plans, but it will also allow huge tax benefits to people who sacrifice all their income and draw down on their super.

Retirees would also not be forced to take their super at 65 if they stopped work.

The superannuation changes announced in last night's budget received strong support from accountants and financial planners.

CPA Australia chief executive Geoff Rankin said that the plan to dump the tax on superannuation benefits once a person turned 60 would be the biggest shake-up of the system in 20 years.

"It's going to be a great incentive for people to save and plan for their retirement," Mr Rankin said.

Association of Superannuation Funds of Australia director of policy and research Michaela Anderson welcomed the changes.