The proposed key changes to Superannuation you need to understand
The recent round of intended changes to superannuation announced with the 2016 Federal Budget was no surprise. It’s not the first time the Government has meddled with superannuation and nor will it likely be the last. But how will it affect you and how can you best plan ahead.
The first thing to remember is the changes are not law yet and of course may alter after industry consultation and the result of the election. Apart from the non-concessional limit change that became effective on budget night we have until July 1 2017 to act.
Proposed changes to superannuation – good or bad?
The major points announced by Treasurer Scott Morrison are as follows:
- Reducing the concessional contribution amount to $25,000 per annum for all taxpayers (as of July 1 2017)
The base funding of superannuation is via the Super Guarantee Charge (SGC). In addition, taxpayers may contribute additional amounts for which they receive a concessional tax treatment. This was a way to encourage Australians to boost their retirement savings.
Placing restrictions on concessional contributions removes this incentive and discourages Australians from using their superannuation as a way to save, ultimately reducing people’s retirement nest egg.
I encourage clients to look at using the higher maximums still available next financial year if cash flow allows.
- Applying a life-time cap of $500,000 on non-concessional contributions back-dated 10 years
Superannuation is an important part of an individual’s long term life savings plan. For politicians to continually change the rules in order to suit their short-term fiscal needs is unacceptable and unfair. But to make retrospective changes to the rules is even worse.
- Applying a cap of $1.6 million to the establishment of tax-free pension accounts for individuals. Surplus balances must be returned to accumulation with earnings taxed at 15%
When former Treasurer Peter Costello introduced unlimited tax free pension accounts, we thought to ourselves at the time – this is too good to be true. And it was.
We have to keep in mind that the tax rate of 15% on superannuation is still better than the alternative marginal tax rates.
The verdict and moving forward.
Despite the slew of changes the superannuation industry has undergone since its inception, what we know for certain is that the Australian superannuation system works. It has been embraced as a good vehicle for retirement savings and is considered world leading by many of our global counterparts.
We need to wait for the fine print in relation to the above changes and use 2016/17 to adjust plans.
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