You should be aware of how the super changes will affect your retirement income.
While the changes to superannuation proposed in this year’s Federal Budget have yet to become law, being aware of how they might affect you will help you make informed decisions on managing your retirement savings.
Of the key changes proposed, there are three that could have an impact on those planning for retirement in the immediate future if they are passed. These are:
Changes to tax on transition to retirement (TTR) accounts
From 1 July 2017, earnings from TTR accounts may no longer be treated as tax-free and will be taxed in a similar manner as superannuation accounts, attracting a 15 per cent tax.
While this effectively reduces the tax benefits, TTR accounts may still be an effective strategy for those using it to genuinely supplement their income when transitioning to retirement, or for those 60 years old or above who won’t pay tax on their income payments.
Lifetime limit on non-concessional contributions
Effective from Budget night, 3 May 2016, a lifetime limit of $500,000 (calculated to include any non-concessional ‘after-tax’ contributions made from 1 July 2007), has been put forward.
The current proposal stipulates that if you made non-concessional contributions in excess of $500,000 before Budget night, then you don't have to withdraw the excess amount, however, if you exceeded the cap after 3 May 2016, you would receive a letter from the ATO advising that the excess must be withdrawn to avoid paying extra tax.
Lowering of the concessional cap
Many Australians may have been hoping to take advantage of the increased concessional ‘before-tax’ contribution limits to boost their savings in the few years leading up to retirement, however, the lowering of the cap would remove the ability to do so.
Until 30 June 2017, the concessional caps of $30,000 for those under 50 and $35,000 for those over 50 still apply so you can still make concessional contributions up to this limit at the tax-rate of 15%. However, from 1 July 2017, a proposed limit of $25,000 will apply, regardless of your age. Any amounts over the limit would be taxed at your marginal tax rate.
It’s not all bad news for superannuation savings, with four legislative changes proposed that should help to improve the superannuation balances of low-income earners, those with irregular work patterns and those who have passed retirement age. These are:
Rollover of concessional contribution limits
If you have a super balance of less than $500,000, you may be able to make catch-up payments if you haven’t reached your $25,000 a year limit during a rolling 5 year period.
Introduction of the Low Income Superannuation Tax Offset (LISTO)
The LISTO would enable those with adjusted taxable income of $37,000 or less to receive a tax offset of up to $500 to cover tax paid on mandatory employer superannuation guarantee contributions.
Broadening the tax deduction on personal contributions
From 1 July 2017, any individual may be able to make personal, voluntary before tax contributions to their superannuation, as long as they do not exceed the concessional cap, and claim a tax deduction.
Increasing the age of contribution
The work test for those aged over 65 potentially will be removed, allowing any individual up to the age of 75 to freely make contributions to superannuation.
Finally, for those making the move to retirement and withdrawing their super as an income stream, a lifetime limit of $1.6 million for transfers from superannuation to pension products (that are not subject to tax) is proposed.
It is important to recognise these proposed changes to superannuation are yet to become law and continue to be hotly debated.
You can prepare yourself in the meantime by taking stock of your own personal financial situation and understanding which changes apply to you, so you can be ready when the changes become law.
This article has been sponsored by AustralianSuper Pty Ltd ABN 94 006 457 987, AFSL 233788, the Trustee of AustralianSuper ABN 65 714 394 898. The views expressed are those of YourLifeChoices and not necessarily the views of AustralianSuper. The article contains general information and you should consider if it is right for you.
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