From July 1, a raft of new laws come into place that dictate how you can fund your super – and now’s the time to seek advice and take action, implore money experts.
Higher income earners and those who are planning to invest inheritances – or perhaps proceeds from a house sale – are the most affected, according to the insiders 50 So What spoke to.
The annual limit on what’s called ‘non-concessional’ contributions – i.e money you’ve already paid tax on – has been slashed from $180,000 to $100,000.
But the goal posts are also shifting for those aged 49 and older who may not have a windfall on the horizon.
The money you used to be able to divert from your pay packet over-and-above the minimum 9.5% your employer contributes – aka salary sacrificing – is being cut from $35,000 to $25,000 each year.
That means if you’re 50 now and were planning to retire at 65, you’ll have $150,000 less in the retirement coffers – minus, of course, the 15% tax your super fund must pay to the government on these ‘concessional’ contributions.
Not surprisingly, the law changes have sparked confusion and disquiet, particularly for the 50-ish ‘battler’, who knows they’re fast running out of time to save for a comfortable future.
“It’s typically people 50 and over who are starting to realise they haven’t got enough in super to meet their expectations in retirement,” says Ash McAuliffe, Managing Director of Victoria’s McAuliffe Wealth Management.
“So they’ve got to playball hardball for the next 15 years, and this is making it harder to do that.”
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Ash believes the law changes are unnecessarily confusing, mainly because the goal posts keep changing for super fund investors.
His best advice is to seek professional help, and don’t wait until July 1 to get it.
“You might find out that you need to do something before July, or you might spend money finding out you’re okay, and that’s not wasting money in my opinion.
“Other than that, you just really need to have a clear idea of what your retirement goals are.
“Generally, the advice I’m giving my clients now is that, the plan we had of putting money into super later, we’re now going to have to bring it forward.”
Fiona Bradley, accountant at MJJ Accountants and Business Advisors on the Sunshine Coast, believes it’s especially imperative larger investors take heed of the super shake-up now, in order to maximise the tax breaks still on the table.
Before July 1, they’re still able to take advantage of a three-year ‘bring forward’ non-concessional payment of up to $540,000 in one financial year. After that date, that figure drops to just $300,000.
“If you think you’re coming into a large amount of money, get it into your super before June 30,” advises Fiona, who is bracing for a rush of last-minute interest from clients before the changeover.
“You can still get it in after that date, but it will take a lot longer.”
Six Park CEO Pat Garrett, a finance heavy weight with over 10 years experience managing billion dollar funds for JP Morgan, says the other factor to be aware is the new $1.6 million tax-free cap on what you can transfer to your pension.
“The new changes will mean there will be restrictions on how much people can add to super over the course of their lifetime,” says Pat.
“This means people in their 50s should also consider their other assets outside super and how this would affect their income over a lifetime.
“If you were in the position of reaching the new $1.6 million cap on your super transfer balance, it could also be worth considering investing outside of superannuation.”
Adelaide accountant Douglas Robins says it’s also important to keep in mind that death benefit pensions are also subject to the same cap, with any excess funds required to be cashed out.
If you belong to a defined benefit super fund, Douglas says it’s also vital to be aware of the special rules that will apply.
“Generally, 50% of a member’s annual defined benefit pension that exceeds $100,000 will be taxed at marginal tax rates,” he adds.
For a summary of the changes coming on July 1, check out the handy table below courtesy of Matthew Kerr, principal adviser at RI Advise Group in Cheltenham, Victoria. On the left you have the state of play today, and on the right, how things will change from July 1.
|No limit on funds moved into tax-free||$1.6 million transfer balance cap on super|
|pension phase.||transferred to the tax-free retirement income|
|You can contribute $180,000 of after-tax||Reduction in annual after-tax contributions cap|
|earnings to super each year (or $540,000 for||to $100,000 (or $300,000 if bringing two years of|
|those eligible to bring forward two years of||contributions forward, if eligible). Clients with|
|contributions).||balances of $1.6 million or more, just before the|
|start of the financial year, cannot make after-tax|
|Annual concessional (before-tax)||Reduction in the annual concessional (before–|
|contributions limit of $30,000 (or $35,000 if||tax) contributions cap to $25,000. This applies|
|aged 50 or over by June 30, 2017).||regardless of age.|
|Unused concessional contributions caps are||Catch-up concessional contributions may be|
|lost.||available for those with balances less than|
|$500,000 just before the start of the financial year.|
|If income from employment is less than 10%||Clients under age 65; or age 65-74 who satisfy|
|of total income, you can claim a tax||the work test, can claim a tax deduction for|
|deduction for personal super contributions.||personal super contributions.|
|Additional 15% tax on certain concessional||Additional 15% tax on certain concessional|
|contributions if your adjusted income||contributions, if your adjusted income exceeds|
|Earnings on transition-to-retirement super||No earnings tax exemption on transition-to-|
|pensions are tax free.||retirement super pensions. Earnings will be taxed|
|at up to 15%.|
|Anti-detriment payments may apply on||No anti-detriment payments on lump sum super|
|certain lump sum death benefits (generally a||death benefits (no refund of contributions tax paid|
|notional refund of contributions tax to be paid||on death).|
|Offset for contributions to spouse’s super (if||Offset for contributions to spouse’s super|
|spouse earns under $13,800).||(if spouse earns under $40,000).|
|The ‘low-income super contribution’ refunds||Introduction of the low-income super tax|
|tax (up to $500) on concessional||offset (effectively a continuation of the low income|
|contributions for those earning $37,000 or||super contribution).|