simplify and streamline superannuation

The Government is proposing a plan to sweep away the current raft of complex tax arrangements and restrictions that apply to people’s superannuation benefits. This would improve retirement incomes and increase incentives to work and save.

Under the proposed plan, from 1 July 2007:

• Superannuation benefits paid from a taxed fund either as a lump sum or as an income stream such as a pension, would be tax free for people aged 60 and over.
  • Benefits paid from an untaxed scheme (mainly public servants) would still be taxed, although at a lower rate than they are now for people aged 60 and over.
• Reasonable benefit limits (RBLs) would be abolished.
• Individuals would have greater flexibility as to how and when to draw down their superannuation in retirement. There would be no forced payment of superannuation benefits.
• The concessional tax treatment of superannuation contributions and earnings would remain. Age-based restrictions limiting tax deductible superannuation contributions would be replaced with a streamlined set of rules.
• The self-employed would be able to claim a full deduction for their superannuation contributions as well as being eligible for the Government co-contribution for their personal post-tax contributions.
• The ability to make deductible superannuation contributions would be extended up to age 75.
• It would be easier for people to find and transfer their superannuation between funds.

To increase further the incentives to save for retirement it is proposed to halve the pension assets test taper rate to $1.50 per fortnight from 20 September 2007.

The superannuation preservation age would not change. The preservation age is already legislated to increase from 55 to 60 between the years 2015 and 2025. People would still be able to access superannuation benefits before the age of 60, although they would continue to be taxed on their benefits under new simplified rules.