After a long period of opposition, the super changes put up in the May Budget and amended in September have been legislated. It is now over to financial planners to help clients navigate the biggest changes in the super tax system in a decade. While some familiar structures and strategies have been up-ended, the system remains fundamentally attractive and offers many routes for people to achieve their goals (once these have been explained).
The cornerstone of the changes to apply from July 2017 is a maximum of $1.6 million (subject to indexation) that can be transferred into a tax free pension account. Once this cap has been met, or if their combined accumulation and pension account balances exceed it, people cannot make further non-concessional contributions.
Impact on workers
The reduced contribution limits will make it difficult for most workers to reach the pension cap, though it should be noted that under the old rules few people got anywhere near this level of super.
Older workers might have more disposable income but the cap on concessional contributions will prevent them putting a lot away when they are able. The 30% tax on contributions for those with salary/super above $250,000 limits them to a net $17,500 each year. They could also pay up to $100,000 a year of non-concessional contributions until they hit the pension cap but this will be out of reach for most people.
The best way to achieve a high super benefit is to start young and put extra in before age 40. These contributions will multiply through compound interest.
For those who are fortunate enough to need to consider the caps, and have partners, managing super as a couple becomes even more important than before. A wealthy couple could retire with up to $3.2 million in tax-free pension accounts by accumulating their super reasonably evenly. Previously, it did not matter how super was divided between a couple – so long as the relationship stayed together!
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