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Budget delivers super benefits

BUDGET season is over for another year and one of the biggest announcements to emerge from the fiscal deliberations of both the state and commonwealth treasuries was the federal government’s blueprint to simplify the nation’s superannuation system. Federal Treasurer Peter Costello believes the superannuation measures introduced in the 2006 budget will simplify a complex set of rules governing Australia’s retirement funding. But just what are the changes and will they achieve their goal? Prominent Subiaco financial planner Craig Billing said superannuation had always been a tax-effective way to invest for retirement, but the complex nature of its rules had made it a hard sell for the government. “There is a general consensus that the budget changes will simplify superannuation and make it easier to understand and more flexible,” Mr Billing told WA Business News. It is important to note, however, that no changes to superannuation actually came into effect on budget night. What was announced was a proposal for superannuation which, if implemented, will commence from July 1 2007, and its final form may differ significantly to what has been presented. The main changes proposed include the abolition of Reasonable Benefit Limits, the abolition of tax on superannuation benefits for people over 60 years, the removal of age-based contribution restrictions, and an easing in the assets test calculation for the aged pension. Also, superannuation investors will no longer have to withdraw their super benefits once they are 65 and no longer working. It is a mark of the current level of complexity in the superannuation system that the government has released such an extensive list of proposed changes. The simplification of super rules may reduce the need for superannuants to seek advice from financial planners on retirement strategies to maximise their superannuation entitlements. However, Andrew Bolingbroke of Perth firm Boutique Financial Planning believes that planning remains essential. “The changes to contribution limits mean there is now more of an incentive for people to start planning earlier, and the need for planning in the transition to retirement remains compelling,” Mr Bolingbroke said. Currently, there is a variable age-based cap on pre-tax contributions into super, starting at $14,000 for those under age 35 and increasing to $100,000 for people over 50 years of age. This will be replaced by a flat limit of $50,000 per person, which will encourage younger people to invest in superannuation, but it may require those closer to retirement to adjust their strategies if they contribute more than $50,000 a year into super. An immediate annual limit of $150,000 has been placed on after-tax contributions to prevent people placing large amounts into super just before retirement to capitalise on the abolition of tax on retirement benefits. This is the only budget super measure that has actually come into effect. In addition, the self-employed will be able to claim a full tax deduction for contributions up to $50,000. This is a major improvement on the current rules that only allow a full deduction for the first $5,000, and a 75 per cent deduction for the balance. The asset test that currently reduces age pension entitlements by $3 per fortnight for every $1,000 above the pre-determined asset limit will be cut in half, meaning retirees will be able to own more assets and still receive some level of aged pension. Current preservation arrangements governing when superannuation monies can be accessed remain unchanged, and the 15 per cent tax on contribution as well as earnings will also stay.

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