Find out why making non-concessional contributions now can boost your super long term
After much debate, the complex new super reforms that were first announced in the 2016 Budget were finalised by the parliament in November last year. With an official title of the Fair and Sustainable Super Act 2016, this legislation also highlights some options to consider as you plan for retirement under the new rules.
Of greatest significance is the clarity around revised non-concessional contributions (after-tax super contributions). Prior to 30 June 2017, the pre-budget rules will apply, affording many people one final opportunity to make a non-concessional contribution to super.
There’s more flexibility to contribute this financial year
With the annual pre-budget contribution limit of $180,000 restored for this current financial year, and up to $540,000 available under the three-year bring forward provision, it’s important to consider your situation now. This is because commencing 1 July 2017 not only do limits decrease, but if you have more than $1.6 million in total super, you won’t be able to make non-concessional contributions at all.
From 1 July 2017, annual contribution allowances will be capped at $100,000, and if you’re under 65, the three-year bring forward provision contribution falls to a maximum of $300,000.
If you weren’t planning extra super contributions, now is the time to reconsider
Contributing more money to super before 30 June 2017 won’t be appropriate for everyone; however, it’s worth thinking about how you might benefit from acting on this limited time opportunity. You’ll need to consider a number of factors including cash flow, capital gains, debt outside of super and time until retirement, but it may provide significant benefits for some, especially if:
You were caught out mid-transaction by the May 2016 Federal Budget announcement
If your intentions to add to your super were thwarted by the surprise announcements in last year’s May Federal Budget, you now have a second chance. Consider using some or all of the $540,000 limit to help boost your super as this could provide longer term tax benefits.
You’re part of a couple and want to make adjustments between your accounts
The $540,000 limit could help you balance your super between one another. This may present some more favourable tax considerations given the introduction of the $1.6 million pension balance transfer cap, which also commences on 1 July 2017.
You’re a long-term saver with over $1.6 million (or close to it)
Eligibility to make non-concessional contributions is not yet limited by your fund balance, but as you can’t make a non-concessional contribution of any amount from 1 July 2017 if your total super is more than $1.6 million, then working through the pros and cons before 30 June is important. In fact, the government has advised that they’ll assess all account types when measuring this cap, including accumulation, pension and defined benefit pensions (that will have a special lump sum value applied).
You’re an investor expecting to sell a large asset or inherit funds in the near future
The potential to transfer up to $540,000 from inheritances or funds from the sale of large assets such as property is worth investigating. Managing the timing of these can be difficult – particularly where large capital gains exist – so consider identifying funding alternatives and tax management options with a strategic financial advisor.
You’re a pre-retiree who may find it difficult to reach your target retirement plans
Due to the overall changes to super, it will be worth revisiting any previously agreed wealth accumulation priorities, including saving outside of super and accelerated debt repayment plans. These strategies may lose some of their advantages in comparison to getting more money into super.
Given the short window of opportunity that’s currently open, it’s wise to consider extra contributions to super now, and if you’re a proactive saver, look to optimise what you can today to make your hard-earned savings stretch further into the future.
This insight is an update to the version originally published on this website in November 2016.
This insight may contain general financial advice and was prepared without taking into account your objectives, financial situation or needs. Before acting on any advice, you should consider whether the advice is appropriate to you. Seeking professional personal advice is always highly recommended. Any forward looking statements are based on current expectations at the time of writing. No assurance can be given that such expectations will prove to be correct.
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