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As expected, the federal government has just announced changes to its superannuation reform package due to the very obvious reality that the previous super policies had no chance of getting through both houses of parliament in their previous form.
The most controversial measure in the government’s pre-election package was the $500,000 lifetime cap on non-concessional super contributions, and its retrospective 10-year count-back provision.
Unable to pass these, the government has announced that it will drop the $500,000 cap along with lowering the annual contribution cap from $180,000 to $100,000 effective 1 July 2017. It will retain the three-year bring forward rule so that in the 2016-17 year, non-concessional contributions up to $540,000 can be made by individuals under 65, and then $300,000 over a three-year period after 1 July 2017.
In addition to lowering the annual non-concessional contributions cap, the government has announced that it will effectively introduce an alternative lifetime cap by including non-concessional contributions in the $1.6 million cap on tax free pension accounts. That is, once this cap has been reached, no further non-concessional contributions may be made.
The other change to the government’s super package is a back-down on the removal of the work test for those aged 65-74 years. In my opinion, this seems to be slightly trivial. It is quite common for someone over 65 years of age with modest super savings to receive an inheritance. If the work test was removed, they would have been able to direct those funds into super, boosting their retirement savings.
This is no longer an option.
What didn’t change
The $1.6 million cap on the establishment of tax-free pension accounts ($3.2 million combined for a couple) remains in place. This comes as no surprise as Labour’s policy is similar but expressed in terms of super earnings rather than a cap on capital, but the outcome is much the same.
The removal of tax exempt earnings on super assets used to support a Transition to Retirement strategy (TTR) remains in place. This comes as no surprise as it has always been considered generous and favourable to high income earners by allowing them to divert income at a reduced tax rate, into a tax protected environment. Nevertheless, it remains an added incentive to retirement savings.
What does this mean for you?
In reality, most of us do not have much capacity to make accelerated super contributions until after we have paid off our mortgage, and our kids have finished their schooling and are able to fend for themselves. For most, this won’t come until they’re well into their fifties. For the government to place limits on contributions when scope is necessary, it seems a little short sighted in my opinion.
There is nothing much in this restructured bill that wasn’t previously expected, and the package is probably better with these changes. One can only hope that some bi-partisan mechanism can be introduced to prevent future governments from tampering with super and over time, provide the public with some confidence in the system.
Any financial product advice provided is general in nature. It does not consider your needs, financial situation or objectives. You should consider the appropriateness of this advice to your circumstances before you act on it.
Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email email@example.com or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.