The new Federal Budget contains some of the most extensive superannuation reforms the country’s seen in some time. So what does it all mean for your retirement?
The Australian government predicts 96 percent of the population won’t experience any adverse effects at all. However, we all may need to rethink our retirement strategies.
The government has capped the amount of money that can be transferred into the zero-tax retirement phase at $1.6 million.
“This amount will be indexed in $100,000 increments. However if you are already in pension phase and you have exceeded this level, you will have to move the excess monies back from your superannuation accounts from 1 July 2017,” John Randall of Deloitte told ABC News.
With the average superannuation balance standing at $76,424, according to the Association of Superannuation Funds of Australia, most of us are well shy of the new $1.6 million limit. The restrictions will impact wealthy Australians who previously could stash millions into a tax-free superannuation structure to lower their tax bills.
Concessional caps for pre-tax contributions have also been cut to $25,000, down from $30,000 for Australians under 50 and $35,000 for people over 50. Ms Slattery of the SMSF Association says this “represents the most significant changes to the superannuation system since the 2007 Budget.”
While less than two percent of Australians make annual pre-tax contributions greater than $25,000, many of the Aussies who do have low superannuation balances and are attempting to grow them before retirement. The new changes make it harder to play catch-up; you will need to salary sacrifice early to accrue the funds you want.
Aussies with super balances of less than $500,000 can also carry forward unused contribution caps for five years. This will assist parents returning to work after having children or those who’ve had extended time off for illness and injury.
A lifetime cap of $500,000 for after-tax contributions has also been introduced. Making a contribution of pre-tax and after-tax contributions will be the best way to grow your super balance.
The government has relaxed the rules around contributions made for low-income spouses. More people will be eligible to claim a $540 tax offset for these spousal contributions.
It’ll be easier for Aussies to avoid high taxes too, with the 30 percent contributions tax rate applying to people with incomes over $300,000, up from $250,000.
The $500 Low Income Superannuation Tax Offset might sound brand new, but it’s essentially a rebranding of Labor’s old Low Income Super Contribution.
The changes look to make the superannuation system fairer for all Australians. If you’re unsure about the changes and whether your retirement is on track, speak to the experts at Chase Edwards. Our retirement forecasting team can provide an honest appraisal of your finances and put together a strategy to help you make the most of your golden years.