SUPERnews. We sort through the budget changes. Federal Budget Changes. How the changes. Proudly serving our members.

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1 SUPERnews Federal Budget Changes We sort through the budget changes How the changes impact your fund Proudly serving our members

2 How the budget changes impact your fund Pages Accumulation Plan... 2, 4, 5, Beneficiary Account... 4, Active Lump Sum Defined Benefit ESSS Defined Benefit, New Scheme, Transport Scheme, SERB Scheme & WISF... 2, Deferred/Preserved Lump Sum Defined Benefit New Scheme, Revised Scheme, Transport Scheme & SERB Scheme... 2, Defined Benefit Active Pension Active SERB & Revised* Scheme... 2,, 8, 9 Defined Benefit Deferred Pension Deferred SERB & Revised* Scheme... 2,, 8, 9 Defined Benefit Pensioners..., 8, 9 Working Income Stream... 2, 4,, 10 Retirement Income Stream... 4, Temporary Disability Pension... 2, Total Permanent Disability Pension..., 8, 9 * Also includes former Revised Scheme members who transferred to the New Scheme between 1988 and SUPERnews

3 Changes to concessional (pre-tax) contributions The amount your employer can put into super (including Salary Sacrifice) on your behalf, otherwise known as concessional contributions that are taxed at the concessional rate of 15%, will be reduced to $25,000, from the current cap of $30,000. The cap applies to everybody irrespective of age. The current higher cap of $35,000 for people over 49 years old will no longer exist. The cap is indexed and will increase in increments of $2,500 in line with average weekly ordinary times earnings (AWOTE). For Defined Benefit members, the Defined Benefit Grandfathering arrangements remain unchanged. The change will take effect from 1 July 201. Prior to 30 June 201 If you are aged 48 or younger, you can contribute concessional contributions of up to $30,000 at the 15% concessional tax rate. If you are aged 49 or older, you can contribute concessional contributions up to $35,000 at the 15% concessional tax rate. If your combined income exceeds $300,000 (which includes the concessional contributions you make), an additional 15% tax will apply to any concessional contributions relating to the income exceeding $300,000. From 1 July 201 Regardless of your age, your employer can only contribute concessional contributions (including any salary sacrifice on your behalf ) of up to $25,000 at the 15% concessional tax rate. When calculating this amount, remember to include contributions in respect to all the super accounts you have. If your combined income exceeds $250,000 (including the concessional contributions you make), an additional 15% tax will apply to any concessional contributions relating to the income exceeding $250,000. Here s how the new cap works Samantha, a 52 year old full-time office worker, is trying to boost her super in the lead up to retirement. Samantha s employer contributes $32,000 on her behalf (which includes salary sacrifice and SG contributions) to her super fund this financial year. She is only taxed at 15% on all those contributions. However, in the next financial year starting 1 July 201, and each year after that, Samantha s employer will only be able to contribute $25,000 (subject to indexation) on her behalf at the 15% tax rate. Any concessional contributions made on Samantha s behalf in excess of $25,000 will be taxed at her marginal tax rate plus an excess contribution charge. Any excess concessional contributions will be regarded as non-concessional contributions (refer to page 3). What can you do? It s a good idea to review the concessional contributions you or your employer are making to all your super accounts to make sure you won t go over the cap unintentionally. If you re a Defined Benefit member, you can use the Notional Taxed Contributions Calculator ( on our website to review the value of your contributions. If you want to know more about concessional (pre-tax) contributioons, contact our Members Service Centre on (Emergency Services Members) or (State Super Members) and they ll be happy to help. 2

4 Changes to non-concessional contributions Non-concessional (or after-tax) contributions are the amounts you put into super for which you do not claim an income tax deduction. The cap for non-concessional contributions will reduce from $180,000 to $100,000 per year. The cap will be indexed in line with the concessional (or pre-tax) contributions cap. It will be 4 times that cap s value (i.e. $25,000 x 4 = $100,000). In the future, concessional contributions will increase in $2,500 increments in line with AWOTE, which means non-concessional contributions will increase in $10,000 increments. The change will take effect from 1 July 201. If you re under 65 years you can only make $100,000 of non-concessional contributions per year. If you re aged 65 to 4 years you can make non-concessional contributions in line with the new cap, as long as you meet the work test*. If you have a total super balance of $1.6 million or more at 30 June of the previous financial year, your non-concessional contributions cap is zero and any non-concessional contributions you make will be subject to excess non-concessional contributions tax and taxed at the highest marginal tax rate. What is the $300,000 bring forward cap? If you have a total super balance of less than $1.4 million and you re under 65 years, you can bring forward more than $100,000 of non-concessional contributions in one year (eg. You can exceed the non-concessional cap), as long you don t exceed $300,000 over a rolling three-year period. If you have a total super balance of $1.4 to $1.5 million and you re under 65 years, you can bring forward up to $200,000 over a two-year period. If you want to trigger a bring forward arrangement before 30 June 201, a transitional arrangement will apply, and you should seek financial advice on how that will affect you. Here s how the new bring forward rule works Denise is 60 years old and has a super balance of $800,000 at 30 June 201. She s received an inheritance and wants to boost her super. In the financial year she contributes $200,000 in non-concessional contributions. Over the following two years she can only contribute a further $100,000 in non-concessional contributions until the completion of the three-year period. What can you do? If you want to know more about the new non-concessional contributions cap, or you re thinking of triggering the bring forward rule before 30 June 201, contact our Members Service Centre on (Emergency Services Members) or (State Super Members) and they ll be happy to help. * Between ages 65-4 you need to have worked at least 40 hours in any period of 30 consecutive days during the Financial Year that the contribution is made. 3 SUPERnews

5 Removal of anti-detriment payments (for Accumulation Products * ) The current anti-detriment provision allows a super fund to make a top-up payment to a death benefit payable to a beneficiary who is a dependent of the deceased. The top-up amount is a refund of the deceased member s lifetime super contribution tax payments. This provision is being removed and super funds will no longer be able to make a top-up payment and claim this as a tax deduction. This means lump sum death benefits will be the same regardless of who receives the death benefit. The change will take effect from 1 July 201. If a fund member dies on or before 30 June 201, the super fund may make an anti-detriment payment as part of a death benefit to the dependents provided payment is made by 30 June If a fund member passes away on or after 1 July 201, the fund cannot include anti-detriment payments as part of a death benefit. Any questions? If you want to know more about anti-detriment payments, contact our Members Service Centre on (Emergency Services Members) or (State Super Members) and they ll be happy to help. * Includes Accumulation Plan, Income Stream & Beneficiary Account. 4

6 Changes to the spouse tax offset Under existing rules, you may be able to claim a tax offset of up to $540 for after-tax contributions of up to $3,000 you make to your spouse s super if their assessable income is under $13,800. Some other criteria apply if your spouse s assessable income includes fringe benefits and employer super contributions. Under new rules, the spouse s income threshold will increase to $40,000. The change will take effect from 1 July 201. The tax offset of up to $540 remains unchanged. It is just the income threshold that has been raised. The tax offset is available to any individual, married or de facto, who contributes to the super of a spouse whose income is less than $40,000. When does the tax offset not apply? The tax offset gradually reduces dollar for dollar for spouse incomes above $3,000 and stops altogether when incomes reach $40,000 or more. The spouse tax offset cannot be claimed if the spouse receiving the contribution has exceeded their non-concessional contributions cap for that year. The spouse tax offset cannot be claimed if the spouse receiving the contribution has a super balance of $1.6 million or more before the start of the financial year in which the contribution is made. Any questions? If you want to know more about spouse contributions, visit our website and search under Grow your super. Or contact our Members Service Centre on (Emergency Services Members) or (State Super Members) and they ll be happy to help. 5 SUPERnews

7 Low income contributions There is a new low income super tax offset scheme (LISTO). This will replace the existing low income super contribution scheme (LISC). The change will take effect from 1 July 201. What is the new scheme? The new low income super tax offset scheme provides support for low income earners to make sure they do not pay more tax on their super contributions than on their take-home pay. If you have an adjusted taxable income of up to $3,000, you will receive a LISTO contribution to your super fund. The LISTO contribution will be equal to 15% of your concessional ( pre-tax) super contributions for a financial year. The LISTO contribution is capped at $500 per financial year. Any questions? To find out more about LISTO contributions, contact our Members Service Centre on (Emergency Services Members) or (State Super Members) and they ll be happy to help. Requirements for co-contributions There are two new additional requirements for receiving a government co-contribution. Your total super balance must be less than $1.6 million at 30 June of the previous financial year. You must not have contributed more than your non-concessional contributions cap. The change will take effect from 1 July 201. The two new requirements are in addition to the existing requirements, which are: making one or more after-tax contributions to your super during the financial year; meeting the income threshold requirements and 10% eligible income tests; being younger than 1 years at the end of the financial year; not holding a temporary visa at any time during the financial year (unless New Zealand citizen or a prescribed visa); and lodging your tax return for the relevant financial year. Any questions? To find out more about how government co-contributions work, visit our website and search under Grow your super. Or contact our Members Service Centre on (Emergency Services Members) or (State Super Members) and they ll be happy to help. 6

8 Transfer balance cap What s the change at a glance? The total amount you can retain or transfer into a Retirement Income Stream account where earnings are exempt from taxation has been capped at $1.6 million. The cap applies to everybody irrespective of age or whether an individual is working or retired. The cap will be indexed in line with the Consumer Price Index (CPI) in increments of $100,000. The change will take effect from 1 July 201. If you have more than $1.6 million in a Retirement Income Stream in the retirement phase the ATO will send you an assessment notice that instructs you to either: Withdraw the amount in excess of the $1.6 million cap; or Transfer the excess to an accumulation phase account. From 1 July 201, earnings and pension payments that increase and reduce your retirement income stream are not counted towards the $1.6 million transfer balance cap. Therefore an increase in your balance due to earnings will not be required to be withdrawn, and a reduction in your balance due to pension payments will not reduce your transfer balance cap consumption and any excess you may have. A new Excess Balance Transfer Tax From 1 July 201, the ATO will calculate notional earnings on any amount in excess of $1.6million in a Retirement Income Stream in the retirement phase. The notional earnings on the excess amount will be liable for excess transfer balance tax of 15% until the excess amount is removed. From 1 July 2018 the Excess Transfer Balance tax rate is 15% for the first time that you breach the cap and then 30% for subsequent breaches of the cap Transfer Balance tax will apply to the notional earnings on the excess transfer balance amounts notified to you by the ATO. The taxable amount is calculated after you remove the excess transfer balance amount or the ATO requests that your super fund removes the excess transfer balance amount from your account based retirement income stream. Please note, transitional arrangements will apply for balances between $1.6 million and $1. million until 31 December 201. Can you transfer in more funds as the cap increases? The cap will be indexed in line with CPI in $100,000 increments. How much cap space you have left will be determined by a proportionate method. This is based on the percentage of the cap you ve already used. How much of the cap you have used and how much you can contribute will be administered and advised to you by the ATO. Here s how the cap works George, a retiree, transfers $1.2 million into an ESSSuper Retirement Income Stream account in July 201. He can still contribute another $400,000 (or 25% of $1.6 million) at a later date. By the time George is ready to contribute more funds, the cap has risen to $1. million. The proportionate rule means he can contribute $400,000 plus 25% of the $100,000 incremental rise. In other words, George can put another $425,000 into his Retirement Income Stream. SUPERnews

9 Transfer Balance Cap & Defined Benefit Lifetime Pensions From 1 July 201, Defined Benefit Lifetime Pensions will also be included in the assessment of the Transfer Balance Cap of $1.6 million. Defined Benefit Lifetime Pensions will be valued at a rate of 16 times the individual s pension amount as at 1 July 201, irrespective of age. That is, any Defined Benefit Lifetime Pensions and account based retirement income streams will both count towards an individual s transfer balance cap. An individual with a Defined Benefit Lifetime Pension of $100,000 p.a (valued at $1.6 million for the purpose of the Transfer Balance Cap) or more, has used 100% of their Transfer Balance Cap and is subject to Excess Transfer Balance tax on notional earnings on any Retirement Income Stream account they may hold. Note there are new taxation arrangements for Defined Benefit Lifetime Pensions of $100,000 p.a or over (these are covered in detail on page 9). Here s how the cap works Example: 1 Bob has a Defined Benefit Lifetime Pension paying him an annual gross income of $130,000 (valued at $2,080,000 for the purpose of the Transfer Balance Cap). He also has a Retirement Income Stream account with a value of $500,000. There are three options available to Bob: (i) Transfer $500,000 of his Retirement Income Stream back into an accumulation account (ii) Withdraw $500,000 of his Retirement Income Steam from the superannuation system entirely (iii) A combination of the first two options but still removing his funds from the Retirement Income Stream account. Note Bob is not required to commute his Defined Benefit Lifetime Pension but instead will be subject to new taxation arrangements (refers to page 9). Here s how the cap works Example: 2 Jill has a Defined Benefit Lifetime Pension paying her an annual gross income of $50,000 (valued at $800,000 for the purpose of the Transfer Balance Cap). Jill has scope to open a Retirement Income Stream account of $800,000 before she reaches the $1.6 million Transfer Balance Cap and becomes subject to Excess Balance Transfer tax on the notional earnings. What can you do? If you think you ve reached the cap, you re coming close to it, or if you ve got any questions, contact our Members Service Centre on (Emergency Services Members) or (State Super Members) and they ll be happy to help. 8

10 Tax on Defined Benefit Pensions Currently Lifetime Defined Benefit Pensions for people aged 60 and over are tax free. A new Defined Benefit Pension cap of $100,000 will be implemented to cap the amount of Defined Benefit Pension income received tax free. 50% of the Defined Benefit Pension income above the cap of $100,000 will be included as assessable income and taxed at your marginal tax rate. The change will take effect from 1 July 201. If you currently receive a Defined Benefit Pension that provides an income of over $100,000 p.a., you will now pay tax on 50% of the Defined Benefit Pension payments that you receive in excess of $100,000. ESSSuper will automatically withhold tax on the assessable amount in excess of $100K, however, this may be insufficient if you have other assessable income which when combined, puts you in a higher tax bracket. Here s how the new cap works Sally is 60 years old and receives an annual lifetime pension from her Defined Benefit fund of $120,000. Now $20,000 of her pension payments exceed the new $100,000 cap. This means that 50% of $20,000 (being the amount in excess), that is $10,000 will be included as assessable income and taxed accordingly. How does it affect Reversionary Pensions? Currently Reversionary Pensions, where the deceased was over age 60 at the time of death, are tax free to an eligible reversionary beneficiary. Under the new rules, all Reversionary Lifetime Defined Benefit pension payments will be subject to the new $100,000 cap. If you currently receive a Lifetime Defined Benefit Reversionary Pension from a Defined Benefit fund, this will not count towards your transfer balance cap for the first 12 months. However, if the total of your Defined Benefit Lifetime Pension payments exceed $100,000 there is no grace period and 50% of the amount of pension payments in excess of $100,000 will be assessed as income and you will be taxed from the date you receive Defined Benefit Pension payments in excess of the cap. Any questions? To find out more about the new tax arrangements for Defined Benefit Pensions, contact our Members Service Centre on (Emergency Services Members) or (State Super Members) and they ll be happy to help. 9 SUPERnews

11 Tax on Working Income Streams Earnings from investments that support a Transition to Retirement Income Stream account (also known as a Working Income Stream) will no longer be exempt from tax. The earnings will be taxed at the concessional rate of 15% that currently applies to super accounts in the accumulation phase. The new tax will apply from 1 July 201 to all Transition to Retirement Income Stream accounts, no matter when they started. The change will take effect from 1 July 201. If you are using a Transition to Retirement Income Stream (or Working Income Stream) as a tax effective way to boost your super while you continue to work, the new 15% tax on the earnings of the fund may reduce the tax effectiveness of your strategy. You will no longer be able to count a commutation (lump sum payments) from your income stream towards your required minimum pension payment. All pension payments will now be treated as pension income payments. Commutations could previously be counted as lump sum superannuation payments and eligible for treatment under the lifetime low rate cap threshold of $195,000 that is tax free for members between preservation age and age 60. Pension payments will continue to be tax free for members age 60 and over. Any questions? If you are thinking of opening a Working Income Stream as part of a salary sacrifice strategy to boost your super, you should seek tax advice to assess its effectiveness under the new rules. Or contact our Members Service Centre on (Emergency Services Members) or (State Super Members) and they ll be happy to help. 10

12 Want to know more? We have a proud history of working with members just like you to help you understand your super and achieve your retirement goals. Who better to help you with your retirement plan? Member Education Consultants As an ESSSuper member, you also have access to our experienced Member Education Consultants who see thousands of our members each year. Contact us today to discuss your circumstances and decide if you need an appointment. The team of Member Education Consultants have specific expertise with the intricacies of your fund and can provide general advice about even the most complex questions you have about your super. Do you need personalised financial advice? General advice about the products and options available at ESSSuper can be provided by one of our Member Education Consultants. For many members, this is often one of the first steps to gain a greater understanding of their super and it can provide enough information to help you feel comfortable in making decisions about your super. However, you might feel you need more assistance. If you'd like us to consider your personal financial circumstances or objectives, and provide advice specific to your personal financial situation, we can refer you to one of our Financial Planners 1. Contact our Member Service Centre to make an appointment (Emergency Services Members) (State Super Members) 1. ESSSuper Member Education Advisers and Financial Planners are authorised representatives of Adviser Network Pty Ltd (Adviser Network). Adviser Network holds a current Australian Financial Services Licence No and is responsible for the financial services provided to you. ESSSuper has an arrangement with Adviser Network Pty Ltd to provide financial advice to ESSSuper members. ESSSuper pays Adviser Network a fee for this service. Neither the Board, nor the Victorian Government, guarantee or endorse any recommendations made by Adviser Network, or are responsible for the advice and actions of Adviser Network. Download the Adviser Network Financial Services Guide (PDF 111.5KB). Popular seminars To help you understand your super and the options available, come along to one of our free seminars. Shape your super Unlock your super Enjoy your super To book a spot for one these seminars please visit esssuper.com.au. Bookings are essential as places are limited. This document is issued by Emergency Services Superannuation Board ABN the Trustee of the Emergency Services Superannuation Scheme ABN (ESSSuper). The information contained in this document is of a general nature only. It should not be considered as a substitute for reading ESSSuper s Product Disclosure Statement (PDS) that contains detailed information about ESSSuper products, services and features. Before making a decision about an ESSSuper product, you should consider the appropriateness of the product to your personal objectives, financial situation and needs. It may also be beneficial to seek professional advice from a licensed financial planner or adviser. An ESSSuper PDS is available at or by calling