How the Budget affects your super
EXPECT large super funds to step up their promotion of government co-contributions to super.
This is likely in the wake of Tuesday’s Budget that proposes to permanently cut the government co-contribution to $1 for every $1 of non-concessional contributions made by an eligible person, up to an annual maximum of $1000.
Previously, the Government had legislated to increase its matching rate to $1.25 for 2012-13 and 2013-14 and then to $1.50 from 2014-15.
Further, the government announced in the Budget the freezing of the indexation of the eligible income thresholds for the next two financial years.
Media commentators this week widely described the super co-contribution for low to middle-income earners as having been a surprise success for the Howard Government, which introduced the measure.
It has certainly been highly successful for super funds, drawing in millions upon millions of extra contributions.
And as for eligible fund members themselves, personal finance writer Annette Sampson wrote in Fairfax broadsheets: “As investments go, it [the co-contribution] was pure gold; a capital-guaranteed return of 150 per cent on your investment.”
By referring to “150 per cent”, Sampson was of course referring to the co-contribution matching rate before last year’s Budget “temporarily” cut it to 100 per cent – a reduction that will become permanent.
Certainly, the government had already announced in its response to the Henry tax review that it would provide an annual super contribution of up to $500 for eligible low-income earners.
It will be in the interests of the super funds and their lower-earning members to step up the promotion of co-contributions to effectively saturation point.
Women have been among the biggest beneficiaries of co-contributions and will no doubt be targeted increasingly by large super funds to encourage them to take advantage of this still “pure gold” opportunity – despite its permanent scaling back.
The Budget papers are available on http://budget.australia.gov.au/
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Robin Bowerman, Vanguard Investments Australia's Head of Retail, has more than two decades of experience in the finance industry as a writer, commentator and editor.