Changes to any laws that directly affect us can be overwhelming to navigate and understand. Below are brief summaries of the changes that will come into effect on the 1st of July this year.
Reduced Contribution Cap – Non-Concessional
For many people a sensible retirement strategy is to add personal money (for example, the proceeds of sale of an investment) to superannuation – this is called making a “non-concessional” contribution.
There are limits to how much you can contribute and as of 1 July 2017, the non-concessional contribution cap drops from $180,000 per annum to $100,000 per annum, meaning you won’t be able to put as much into your super as you could right now.
Using the “bring-forward” rules, if you’re under age 65, you could bring forward three years’ worth of after-tax super contributions up to a maximum of $540,000. This is significantly higher than the $300,000 limit that will apply from 1 July 2017.
Another important consideration is that from 1 July 2017 you will not be able to make a non-concessional contribution where your superannuation account balance is greater than $1.6 million.
Of course, there are many things that need to be considered before selling an asset and/or making a super contribution of this size. If this sounds like something that you should consider, feel free to call to discuss your circumstances.
Reduced Contribution Cap – Concessional
When it comes to before-tax (concessional) contributions, there are also new caps. So, if you make salary sacrifice payments for example, you’ll be limited to a maximum annual amount of $25,000 (*including employer amounts). This is considerably less than the current annual caps of $30,000 if you’re under 50 or $35,000 if you’re aged 50 and older. There will no longer be a separate cap for those aged 50 and over. Everyone will be limited to the new pre-tax/before tax contributions limit of $25,000 per year. We will be happy to help you estimate the new salary sacrifice amount from 1 July so you can avoid the penalties for exceeding your cap.
WHAT DOES THIS MEAN FOR YOU? Is your Transition to Retirement Strategy now less effective?
The benefits of a Transition to Retirement (TTR) strategy have been significantly impacted by these changes.
One of the benefits of a TTR strategy was that drawing a pension meant you could afford to salary sacrifice more than you might otherwise would have been able to afford. The reduction in contribution limits (discussed above) will mean that access to this benefit will be limited to a lower level.
A second benefit was that the earnings on the investment balance in your pension account was taxed at 0% however, as at 1 July 2017, it will be taxed the same as if the money remained invested in your superannuation account.
All in all then, it may be a marginal exercise to commence a new TTR strategy.
If you’d like to learn more about these changes or you’d like to work with us on a TTR strategy please call our office on 49488613 to book an appointment.