Revisions to super open a window of opportunity

The government’s decision not to proceed with the unpopular proposal of a $500,000 lifetime non-concessional cap provides a highly valuable opportunity for proactive pre-retirees to build their retirement nest egg before 30 June 2017. If you had intended to add more to super but were not able to get it done before the surprise budget announcement in May last year, you now have a second chance.

There’s now more flexibility with the revised proposal on super

Commencing from 1 July 2017, the revised proposal allows annual non-concessional contributions of $100,000 while individuals under 65 are also given the opportunity to contribute up to $300,000 by using a three-year bring forward provision. However, after that date, if you’re a saver with more than $1.6 million in total across your super, you won’t be able to make a non-concessional contribution of any value. The government has advised it will assess all account types in measuring this $1.6 million cap including accumulation, pension and defined benefit pensions (that will have a special lump sum value applied).

And you can take advantage of these opportunities in this current financial year

Even if you weren’t planning to make extra contributions to super, you should now consider the opportunity, particularly if you’ve already accumulated more than $1.6 million within super, or if you expect to reach this limit in the next few years. Eligibility to make non-concessional contributions is not yet limited by your fund balance, so working through the pros and cons before 30 June 2017 is important.

With the annual pre-budget contribution limit of $180,000 restored for this current financial year (or $540,000 if the three-year bring forward provision is available to you), there’s room to move. In particular, the potential to transfer up to $540,000 from inheritances or funds from the sale of lumpy assets such as property will be worth investigating. If you’re part of a couple, using some or all of the $540,000 limit could otherwise help you restructure your super, which could provide longer term tax benefits and help you to keep more money in your pocket each year.

Think about how you want your retirement assets to be structured after 1 July 2017

This is when the new regime will be in place. Remember that up to $1.6 million can be held in retirement pensions tax free and that the accumulation accounts remain very attractive – particularly when compared to personal marginal tax rates. Income generated inside these accounts (such as dividends and bank interest) are taxed at 15 per cent and capital gains are taxed at 10 per cent (if the investment is held for at least 12 months).

Over time, the savings from having your investments in a lower tax environment can be significant. However, putting more money into super won’t be appropriate for everyone. You should consider income, assets and debt outside super, time until retirement, and potential capital gains on non-super assets. Couples may also need to consider age differences and the final value assigned to defined benefit pensions.

There is a short window of opportunity still open, so proactive savers should act now to optimise what they can to make their hard-earned savings stretch into the future.

This insight is an update to the version originally published on this website in September 2016. Any strategies or recommendations are general in nature and do not take into account your objectives, financial situation or needs. As always, your personal circumstances are critical when considering any financial strategy and seeking professional personal advice is highly recommended. Further any forward looking statements are based on current expectations at the time of writing. No assurance can be given that these statements will prove to be correct.

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Nerida Cole

Managing Director, Head of Advice

Nerida is a highly experienced financial advisor with a specialisation in all aspects of superannuation including self managed super funds (SMSF), retirement planning and wealth-building strategies. Nerida is responsible for the training, development and mentoring of all of Dixon Advisory’s team of Financial Advisors Australia wide.

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