Changes to superannuation to watch out for
The budget handed down by the government in May announced proposed changes that will effect superannuation. The major aspects of change are as follows:
Lifetime cap for after tax contributions
You can currently make up to three year’s worth of after-tax (non-concessional) contributions in a single year ($540,000) under the current rules. If using the three years worth, you have to wait until that three years has passed before you can once again ‘bring forward’ more of this type of contribution.
With the budget changes there will now be a lifetime limit of $500,000 on these after-tax contributions, and will count all such contributions made since 1 July 2007.
What effect will this have?
If you were planning on using the transfer of assets or proceeds from the sale of assets over time to maximise this type of contribution to your superannuation fund, this strategy can only be used up to an amount of $500,000.
Currently you could contribute $540,000 this year, then a further $540,000 in another three years time. If any future planning involved this sort of strategy it will need to be reconsidered.
Also, any future planning with this type of contribution will also need to take into account any non-concessional contributions made since 1 July 2007 where this was not the case previously.
Changes to concessional contributions
From 1 July 2017, where a person (whose individual super balance is less than $500,000) doesn’t use all of their concessional contributions cap (the before-tax maximum contribution amount) the unused amount can be contributed in the following five years.
This makes up (to some extent) for another change announced – the reduction in the concessional cap to $25,000 from 1 July 2017, no matter the age of the member.
What effect will this have?
The reduction in the cap will reduce the amount of tax deductible contributions that can be made for fund members, but those members who have only been contributing their superannuation guarantee amount each year will see them able to contribute more when their cash flow may allow it.
Removal of the work test
From 1 July 2017, if you are age 65 – 74 you will be able to make after-tax contributions to superannuation without having to work a certain numbers of hours.
This is because the requirement to work a certain number of hours in a certain time frame (known as the ‘Work Test’) will no longer apply.
What effect will this have?
Those planning to sell assets to help fund retirement will be able to extend the time frame in which they wish to do this, whether this is due to wanting to retire later than 65 or simply to wait for the asset to come to the market price they are seeking.
In using such a strategy though, the super fund member’s contribution will need to fall under the $500,000 lifetime cap noted above.
A cap on Pension balances
From 1 July 2017, the amount of money held in all pension accounts in a person’s name may not exceed $1.6M (this does not include fund earnings after that time).
What effect will this have?
For those with pension balances above this amount they will need to transfer the excess figure out of the pension. This can be transferred into a superannuation account in the members name in the accumulation phase.
While these changes have not passed into legislation yet, it would be a good time to consult your adviser as to how they may affect your situation now and the impact on your retirement planning.
