Update: pension changes will affect the strategies we utilise for your retirement
The superannuation landscape is set to drastically change now new budget changes loom on the horizon. As part of the ‘May Budget’ changes you will begin to see many of the strategies once harnessed by financial planners become ineffective.
One of those much-loved strategies was to draw a larger than required pension, with the express purpose in mind of recontributing excess cashflow back into super. This was effective for those aged 60 or over who drew down on their super funds tax-free. Once they had drawn their monies from super they would complete one of two options:
Make larger than normal salary sacrifice contributions to super via their employer (or deductible contributions if self-employed) to make up for the extra cash-flow in their possession from the pension drawdown.
Make extra non-concessional contributions (NCC’s) which were to be recontributed back into super as a way of lowering the taxable components of their super fund so to lower the tax which may be paid by a non-tax dependant beneficiary.
This was often combined in different degrees which also worked well.
The transition to retirement and salary sacrifice combined strategy once went hand in hand for those wishing to minimise their tax position and had few drawbacks. The tax office now have made it increasingly difficult for those approaching retirement in this regard. We must now look toward other strategies we can utilise to assist us in helping clients maximise contributions, whilst minimising their tax position. For those individuals who had met a full condition of release, withdrawing large amounts of their superannuation capital and recontributing it as a non-concessional contribution made sense.
Drawing the minimum pension will become the new norm as investors will look to preserve their capital within the superannuation environment.
Many of those strategies now no longer exist or have been amended. These changes won’t happen until next financial year so we should make the most of it whilst we still have these strategies available to clients.
In a market that has experienced a number of changes unlike anything in the past we must now assess how to proceed.
How do I maximise my superannuation contributions before June 30?
You have a few options available.
- Take advantage of the current higher concessional contribution (CC) limit for this financial year (2016/17). From 2017/18 financial year the age bracket difference between the cap limits will cease. A $25,000 CC cap limit for apply across all ages.
Concessional contributions cap limits for 2017/2018 year and 2016/2017 years.
| Income Year | Under 50 | 50 to 69 | 60 and over |
| 2017/2018 | $25,000 | $25,000 | $25,000 |
| 2016/2017 | $30,000 | $35,000 | $35,000 |
**Reduced general concessional cap of $25,000 applies from 1 July 2017, subject to legislation.
- Make the most of the higher NCC limits for FY17. No matter how much you have in super, you are still able to put in NCCs if you meet the conditions. For those under 65, that’s $180,000 for this year and potentially $540,000, if you put it in before June 30, by using the three-year pull-forward rules.
Proposed updates to legislation which you may have missed
On 15 September 2016, the federal government announced that the proposed $500,000 lifetime cap on non-concessional contributions was now scrapped, and would be replaced with an annual $100,000 non-concessional cap (subject to legislation). The start date for the annual non-concessional cap is 1 July 2017, which means that the $180,000 annual non-concessional cap remains in place until 30 June 2017, and the bring-forward rule allowing up to $540,000 in non-concessional contributions, also remains in place until 30 June 2017 (Source: SuperGuide, 2016).
The $180,000 NCC and the 3-year $540,000 bring forward continue to apply for the 2016/2017 year.
Note: The annual $100,000 non-concessional cap will be indexed in line with the $25,000 concessional (before-tax) cap (that will also take effect from 1 July 2017, subject to legislation).
Non-concessional contributions cap* limits for 2017/2018 year and 2016/2017 years.
| Income Year | Cap | Bring-Forward Rule |
| 2017/2018 | $100,000** | $300,000** |
| 2016/2017 | $180,000 | $540,000 |
*If you’re aged 65 or over, you must satisfy a work test to make super contributions. You cannot make voluntary super contributions after turning 75. For more information on the over-75 rule, see Total Advice Partners to speak with a financial planner regarding the specifics.
** The $100,000 NCC cap applicable from 1 July 2017 is not yet law. .
Some areas to note regarding the changes to the work test and NCC cap limit.
- If you’re over 65 but can meet the work test for Financial Year 2016/17, then you can still also put in $180,000 in NCCs this year.
- From July 1, it goes down to $100,000 for everyone (and $300,000 under the pull-forward provisions).
- But with an added restriction – you won’t be able to make NCCs at all if you already have more than $1.6m in the superannuation system.
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