20 Dec Is the New Legislation Kryptonite for Superannuation?
As the government tries to bridge the ever-growing budget deficit, access to superannuation taxation benefits have been stripped back. Previously the tax advantages in superannuation truly were super and there’s no doubt the new legislation introduced in November 2016 weakens the benefits.
The common misconception of superannuation is that it’s an investment. However, superannuation is actually first and foremost a taxation structure for your retirement savings. In return for not having access to the funds until you reach a retirement age, you get very low tax rates. The options for investing your super are as varied as the way in which you can save for your home, car or children’s education.
The major changes are summarised below:
- Limits on tax-free pension balance – A $1.6 million pension transfer balance limit which will limit the total amount that an individual can transfer into a tax-free retirement income stream from 1 July 2017. This proposal contains some transitional arrangements for individuals already in retirement phase with balances above this limit
- Loss of tax-free earnings for Transition to Retirement Pensions – income streams commenced with preserved funds will no longer be eligible for tax free earnings.
- Reduction of the concessional contribution limit – the annual concessional contributions cap will reduce to $25,000, regardless of age, from 1 July 2017
- A lowering of the high income threshold – the Division 293 additional 15% tax that applies to concessional contributions will apply to contributions made by individuals who earn $250,000, reduced from $300,000
- Allowing catch-up concessional contributions – will be available to members with combined superannuation balances of less than $500,000 at the end of a financial year. This measure will now only commence from 1 July 2018, which means the earliest a member will be able to take advantage of this reform is from 1 July 2019
There is no doubt that the rules for super have become more complicated and now, more than ever, it is important to plan your retirement contributions and manage your superannuation. The advantages offered by superannuation are still fly far above those offered by the taxation that applies to other savings approaches
For those that manage their retirement plans carefully the changes should not be life changing. However, to those who procrastinate with their retirement plans and intend to turn to their Super as a last minute saviour, these changes could be Kryptonite for plans of a comfortable retirement!
If you want help with your retirement planning and/or understanding what these changes may mean for you please contact our Financial Adviser Chris Kelly on 02 9633 5530.
We will also shortly be providing more detailed information about what these changes may mean for you and how to plan for it, so keep an eye out in your inbox!
This information, and any advice provided is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore you should consider its appropriateness having regard to these factors before acting on it.