When the Federal Government handed down its Budget on 9 May 2006, it announced a series of proposals that, if enacted, will dramatically change the nature of superannuation and retirement savings in Australia.

Why change the super system?

Australia has a very complex superannuation system. The government's proposals are designed to simplify the many tax arrangements and legislative restrictions that apply to superannuation savings and retirement benefits, and provide more incentives for people to work and save for their retirement.

When will the changes take effect?

The government's intended changes are only proposals at this stage. The government is currently considering all submissions it has received following the industry consultation period which closed on 9 August 2006, and will announce the final details of the proposed changes shortly. The government has further announced that any proposed changes, if enacted, would take effect from 1 July 2007.

What are the proposals?

Some of the government's main proposals include:

• All superannuation benefits received from a taxed fund (e.g. most public sector funds) after age 60 would be tax free;
• Reasonable benefit limits (which currently place restrictions on how much you can take out of your super at a concessional tax rate), would be abolished;
• Those reaching 65 years old would no longer be forced to withdraw their super, but could instead retain their savings in a super fund (currently, individuals must cash in their super if they reach age 65 and are no longer working, or by age 75 even if they are still working);
• A cap of $50,000 per year per individual would be introduced for tax-deductible super contributions (i.e. employer contributions and salary sacrifice contributions) regardless of age;
• The amount of undeducted contributions (i.e. personal after-tax contributions) would be limited to $150,000 a year per individual;
• The self-employed would be able to claim a full tax deduction on their super contributions and access to the Government's co-contribution scheme;
• Retirement pensions would be simplified so that only a minimum payment would be required each year, with no upper limit on payments;
• The age-pension assets test would be relaxed so that retirees would be penalised less heavily for having savings over the minimum limit;
• The Superannuation Guarantee will continue to apply for all eligible employees up to age 75

Visit the government's SimplerSuper website at www.simplersuper.treasury.gov.au for full details of the government's proposals.

How do I know if this affects me?

Regardless of whether you're currently working, about to retire, or already retired, if the proposals do become legislation, it is more than likely that you will be affected by the changes.

However, as these are only proposals, it's impossible to determine what impact the changes would have on your superannuation savings or your retirement benefits at this stage. So, to stay in touch with the progress of these proposals, keep an eye on the following sources of information:

• Visit the Tax Office website at www.ato.gov.au/super for information and updates on the proposals as they come to hand;
• Visit your super fund's website – most super funds already have information on their websites about the government's proposals, and most will continue to keep their members up to date as the proposals move through the legislative process;
• Contact a licensed financial adviser if you have any queries or concerns.