The clock is ticking on superannuation contribution changes

RETIREMENT savers are rushing to pour money into their superannuation before non-concessional contribution caps are slashed from the middle of this year. This is one of the most significant changes Australia’s super system has seen over the past decade.

The recent superannuation legislation that was announced in the 2016 Federal Budget was passed by both houses of parliament on 23 November and is now law.

Currently, individuals under the age of 65-years can make non-concessional contributions of $180,000 per year, or $540,000 in a one-off payment every three years with the “bring-forward” rule. These non-concessional contributions are generally voluntary contributions into superannuation from an individual’s post-tax income.

Earnings on these contributions are taxed at a flat rate of 15 per cent in accumulation accounts and are then tax free when transferred into retirement accounts.

 

What is changing?

The proposed $500,000 lifetime cap for non-concessional contributions has been dumped.

From 1 July 2017 the annual limit for non-concessional payments into super accounts will be reduced from $180,000 to $100,000.

This means that individuals have five months to make a three-year payment of $540,000, which will be restricted to $300,000 in the new financial year.

In addition, Australians with a total superannuation balance of $1.6 million or more from 1 July 2017 will no longer be eligible to make non-concessional contributions. For those with balances close to this, they will only be able to bring-forward payments until they reach the $1.6 million limit.

As is currently the case, those aged between 65 and 74-years can make non-concessional contributions of $100,000 if they meet the work test (work 49 hours within a 30-day period each income year), though will not be able to access the bring-forward benefits.

 

Take action now

Those nearing retirement will be most impacted, particularly those playing catch-up. If anyone has recently sold an asset or received a lump sum, they are being urged by MyState financial planners to get in touch and find out whether they are eligible to take advantage of the current, more generous, caps.

The opportunity provides up to $240,000 of legroom for superannuation savings, which is approximately two-and-a half-years worth of contributions in accordance with the new legalisation.

Given the changes and their substantial impact on future funds, now is the best time to contribute while the window of opportunity is still open.

The new super system is more complex than ever and so investors should seek guidance in order to maximise their contributions and reach the best financial outcome for retirement. Before selling assets, it is important to speak to an experienced financial adviser to discuss what the best options are for each individual.

If you would like to find out more, call Matthew Khourey at MyState Wealth Management on 1300 651 600 or visit mystate.com.au/wealth

Information is current as at 23 January 2017. This is general advice only, before making any decisions please speak with a MyState Wealth Management Financial Planner.