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Chapter 3
Schedule 2: change to superannuation co-contributions
Description of the measure
3.1
Schedule 2 amends the Superannuation (Government Co-contribution for
Lower Income Earners) Act 2003 to reduce the matching rate and maximum
co-contribution for eligible personal superannuation contributions made in the
2009‑10 to 2013-14 income years.
3.2
The co-contribution is a superannuation contribution that the government
makes for eligible persons on low to middle incomes. Since 1 July 2004, the
matching rate and maximum co-contributions have been 150 per cent and $1,500,
reducing by 5 cents for each dollar by which the individual's total income
for the income year exceeds the lower co-contribution income threshold in the
relevant year. The lower income threshold is $31,920 for 2009-10.
3.3
Under the bill -
- in the 2009-10, 2010-11 and 2011-12 income years, the matching
rate will reduce to 100 per with a maximum co-contribution of $1,000, reducing
by 3.333 cents for each dollar by which the person's total income exceeds the
lower income threshold ($31,920 in 2009-10);
-
in the 2012-13 and 2013-14 income years, the matching rate will
be 125 per cent with a maximum co-contribution of $1,250, reducing by 4.167
cents for each dollar by which the person's total income exceeds the lower
income threshold;
- in 2014-15 the scheme will revert to the current matching rate of
150 per cent and maximum co-contribution of $1,500.
3.4
The income thresholds will continue to be indexed.
3.5
The Government argues that '...the temporary reduction in the
co-contribution will generate necessary budget savings in the current economic
climate thus supporting Government initiatives such as pension reform, whilst
maintaining a significant and generous incentive for eligible persons to
contribute to superannuation.' The Government estimates that the change will
affect around 1.5 million people in 2009-10.[1]
Issues raised in submissions
3.6
Submissions supported the existing arrangements and argued that the
change will reduce the incentive to save. They supported the Government's
intention that the change is temporary. The Association of Superannuation Funds
of Australia argued that the co-contribution should be increased. The Financial
Planning Association argued that the co-contribution should not be reduced; in
any event, the reduction should be in place for no more than a year, and when
reinstated should be increased by 50 per cent.
[2]
3.7
Treasury argued that the temporary reduction is not expected to have a
significant impact on the level of superannuation contributions as the scheme
remains very generous.[3]
Committee comment
3.8
The committee accepts the need for the measure to generate budget
savings in the current economic climate to support Government initiatives such
as pension reform.
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