Following recent announcements made on superannuation yesterday by the Labor Federal Government, it is middle Australian’s and most importantly those with SMSF which will suffer lower retirement benefits.

As previously announced by the Government, individuals earning up to $37,000 will effectively pay no tax on their superannuation guarantee (SG) contributions from 1 July 2012. Under the Low Income Superannuation Contribution scheme (LISC), the 15% contributions tax will effectively be refunded into the superannuation accounts of the member.

Under the reforms announced today:

• The Government will streamline the LISC so that individuals automatically benefit from it without being burdened with extra paperwork. Rather than requiring eligible workers to fill out a tax return or other type of form, the Australian Taxation Office (ATO) will verify an individual’s income using available data.  This change will help low‑income Australians who do not have to lodge tax returns, but qualify for assistance to boost their superannuation savings.
• Individuals who receive less than 10 per cent of their income through employment or business will not be eligible. This is in line with eligibility criteria for the co-contribution.
• Individuals will only receive a payment if their LISC entitlement is at least $20, to reduce administration costs. 

These reforms come at a cost to Middle Australia and it seems that the Labor Federal Government has given up on this large group of Australians.

The Costs

Concessional Contributions Caps

The Government is to pause the indexation of the superannuation concessional contributions caps for one year in 2013-2014.

Superannuation Co-contributions

The Government will reduce the matching rate and maximum payment of the voluntary superannuation co-contribution from 1 July 2012.

The cut to both of these measures are to help fund the Low Income Superannuation Contribution scheme, thereby affecting and reducing the retirement savings of middle Australia.