20 December 2005
Macquarie Adviser Services’ Head of Technical Services, David Shirlow, today welcomed new regulations which flesh out the detail of the Government’s pension and spouse super splitting changes, which take effect from 1 January 2006.
“While draft regulations were released publicly for comment a month or so ago, now the final regulations are in place the super industry can bed down its product offerings in response to these changes,” Mr Shirlow said.
For people who can afford to, the changes should provide a strong, additional incentive to contribute to funds for their retirement via superannuation.
Combined with other recent tax changes to superannuation, such as the removal of the surcharge, these measures are likely to lead to an increase in the level of voluntary super saving for the balance of the 2005/6 financial year and beyond.
For married couples who are yet to retire, the spouse splitting rules effectively permit a percentage (or in some cases all) of contributions made into one spouse’s super account to be transferred into their spouse’s super account provided the receiving spouse is under age 65.
This enables both spouses to take advantage of certain tax concessions available on both lump sum and pension super benefits. In some cases, it will also enable spouses with a lot of super savings to avoid overfunding their account and thus avoid penalty tax applying.
Broadly, if your super fund allows it, in July 2006 you will be able to apply to split an amount out of your super account totalling 85% of the employer contributions or personal deductible contributions made for you in the period from 1 January to 30 June 2006, plus 100% of personal non-deductible contributions made in that period.
In July of each following year the application can be made in relation to contributions made during the entire previous financial year.
In other changes, for retirees who are interested in starting an allocated pension from 1 January, a new set of income levels will apply. Generally, lower levels of income may be drawn each year, to ensure the pension lasts longer. This change has been made in response to improved longevity of Australians.
Similarly, for retirees interested in starting a term allocated pension next year, the range of terms that the pension can run for has been extended significantly. A term allocated pension started by a retiree next year will be able to last right through until they reach age 100.
Also, the income drawdowns for term allocated pensions have been made more flexible. Term allocated pension investors will be able to draw an income up to 10% higher or lower than the standard drawdown each year, which means investors can exercise some level of control of the amount they draw from year to year.
There are a number of refinements in the final regulations which were not in the original drafts.
The spouse super splitting rules, for example, now specify that the spouse who is to benefit from a contribution split and is aged from 55 to 64 inclusive must be able to declare that they have not retired.
Superannuation providers such as Macquarie will be communicating their own fund conditions for allowing spouse super splits.
The final allocated pension rules are different from the original drafts in a couple of key respects. Firstly, for allocated pensions started from 1 January to 30 June 2006 inclusive,the old income levels can be adopted for the 2005/6 year only, then the new income levels are to apply for later years. Funds can, however, choose to adopt the new income levels from 1 January.
Secondly, some changes proposed in the original draft, such as changes to child allocated pensions proposed, have been omitted from the final rules, pending further industry consultation.
The term allocated pension rules are largely as originally drafted.
For further information, please contact:
Head of Technical Services
Macquarie Adviser Services
Tel: (612) 8232 6442
Head of PR & Communication
Macquarie Financial Services Group
Macquarie Funds Management Group
Tel: (612) 8232 3241
Mobile: (61) 417 260 309