Prepare your super for proposed budget changes
Speculation continues that changes to current superannuation tax breaks will be a feature of the 2016 Federal Budget when it is handed down on May 3rd.
Although the exact changes may not be known until budget night, the intent seems to be to reduce the amount that savers can put into superannuation and receive tax concessions for. Unfortunately, this will make it harder and costlier to reach your retirement goals. Based on comments from Treasurer Scott Morrison, super fund members in the pension phase are expected to get a free pass in this budget. This highlights the importance of considering pension strategies now.
With the budget merely weeks away, make April the month you review your current super situation to ascertain how you can still maximise your retirement nest egg and have the best chance of maintaining eligibility for the tax concessions available under the existing rules for as long as possible.
If you are eligible to commence a pension, then consider setting it up before budget day. Pensions established after this may end up with less flexibility. Transition-to-retirement pension accounts have attracted quite a bit of focus and the eligibility conditions for commencing one of these accounts while you are working could be tightened. For example, rules may be introduced that only allow people to commence a transition-to-retirement pension if they drop down the number of hours worked. Alternatively, the tax concessions available upon commencing one of these accounts could be wound back. If you are already at your preservation age (currently 56) and want to investigate the viability of setting this up now, then you should consider your personal marginal tax position as it’s not until you reach age 60 that payments made from these transition-to-retirement pensions are tax free.
If you are a couple, consider evening up the balances of the super accounts of each person, especially if you are close to or at retirement. This may assist if proposals such as applying additional tax to super accounts generating annual earnings above $75,000 come to fruition. It is important to firstly consider your eligibility to withdraw from super and if tax will apply, and if the spouse is eligible to make a contribution and at what level. This might sound complex but for people between the ages of 60-65 it can be quite straightforward, and can also be considered at other ages too.
If you are planning to make additional voluntary super contributions via the non-concessional contribution method and you have the available funds, then consider doing this prior to budget day. This could help if the contribution limit is reduced or if existing super balances are able to maintain current tax concessions but new monies added after budget (or another set date) face a new tax regime. Don’t be hasty in letting go of capital through a firesale of assets though; always ensure to consider implications against longer term contribution and capital management plans.
The final word
- Review your personal situation and options before acting as not every proposed change will come in and not all will impact you.
- Avoid foregoing capital to implement any of these super strategies.
- If you are not yet 60 carefully check the tax implication of making any withdrawals from super before you act.
- Understand your eligibility to contribute to super. Before age 65 is straightforward, after this a work test is required.
- Be careful of contribution limits and what you have put into all super accounts, this year and for previous years.
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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It’s important to have the knowledge you need to make an informed and confident decision about your retirement savings.