The upcoming Budget and your Super – Time to Act
There has been some media speculation in the lead up to the Federal Budget about potential changes to superannuation rules, including changes that might impact annual contribution caps and/or transition to retirement (TTR) strategies.
So what does this mean for you?
While these changes are only speculative, now may be the time to consider making the most of any potential benefits available under the current rules. This includes considering:
- whether you can salary sacrifice the optimal level into super (being mindful of the contribution cap limits) and/or
- a transition to retirement pension if you’re of preservation age which enables you to draw a pension from your super while you’re still working.
What are the existing rules and Speculated Changes?
Superannuation contribution caps
|Definition||Advantages under current rules||Speculated Changes|
Concessional contributions are taxed at 15% and include contributions made through salary sacrifice arrangements or the compulsory superannuation from your employer.
|Concessional contributions are capped at $30,000 if you’re under age 50 or $35,000 if you’re 49 or over at 30 June 2015.||
Reducing the cap for which the 15% tax concession applies and introducing an increased marginal tax above this cap. Some have been quoted or suggesting a cap of $11,000.
|Non-concessional contributions or after-tax contributions are contributions to super that you make from your after tax salary and wages or your accumulated savings.||After-tax contributions are capped at $180,000. However, if you are under age 65 you can contribute up to $540,000 in one financial year, under the bring-forward rule. This rule operates over a 3 year period and allows you to bring forward the following two financial years contributions.||No change has been publically suggested in this area of super, however some advisers have advised making contributions before budget, in such specific circumstances as having recently received large inheritance or funds from the sale of property and the client had considered contribution previously or were at an age close to retirement.|
Transition to retirement pension
|Definition||Advantage under current rules||Speculated Changes|
|A transition to retirement pension (TTR) enables you to start drawing an income from your super once you reach preservation age, ranging from 55 to 60 depending on your date of birth even if you are still working full time. Access to a 15% pension tax offset on any amount drawn as a TTR pension.||Designed to supplement your income if you drop down to part-time work while you transition to retirement.
Can be used in conjunction with a salary sacrifice strategy to grow your balance.
By commencing a TTR pension the balance of your account moves to a “tax exempt” status so it pays no tax on dividend income, rental income or capital gains. For example, if your $400,000 balance earns 6% income then the tax currently is $3,600 in accumulation phase of super or you can pay “Nil” in pension phase.
|The government has suggested a tightening of rules around TTR pensions, the most concerning being limiting the number of hours one can work before commencing a TTR pension, severely affecting the benefits around a salary sacrifice strategy aforementioned or receiving a TTR pension.|
An Example of an effective transition to retirement pension strategy
|No Salary Sacrifice||Salary Sacrifice Only||Salary Sacrifice & TTR Pension||Salary Sacrifice & TTR Pension|
|Less: Salary Sacrifice||–||$27,400||$27,400||$27,400|
|Total Taxable Income||$80,000||$52,600||$75,600||52,600|
|15% Pension Tax Offset||–||–||$3,450||–|
|Income Tax – Including Medicare levy, tax offsets and rebates||$19,177||$9,686||$17,659||$9,686|
|Tax on Superannuation earnings*||$3,600||$3,600||–||–|
|Take Home Income||$60,823||$42,914||$61,391||$65,914|
|Net Change in Super Balance**||$26,860||$50,150||$27,150||$27,150|
* Assumes a super balance of $400,000, investment earnings of 6% and 15% on earnings
** Assumes above investment earnings and employer contributions of 9.5%
What to do now
- Check your fund type – TTR pensions are only available for members of accumulation super funds.
- Work out your retirement strategy – Do you want to cut back on work or do you want to boost your super?
- Decide on your income needs – Take into account all your income sources to work out how much money you should draw down from your super. Often people find their income needs reduce as they get closer to retirement and they can afford to salary sacrifice into super, or reduce work hours, without having to replace the lost income.
- Check your social security entitlements – If you or your partner is receiving social security benefits, speak to a Department of Human Services’ Financial Information Service officer, as there may be implications for you or your partner’s pension and other entitlements.
- Check on your life insurance – If you have life insurance with your super fund, check with the fund or your financial adviser to make sure your life cover does not reduce or cease.
- Contact The Money Edge to discuss the options available to you.
To talk through these options based on your personal circumstances, or for further information please contact our office on 07 4151 8898 for an appointment.
This has been prepared by The Money Edge, an Authorised Representative of Count Financial Limited ABN 19 001 974 625; AFSL 227232 (“Count”) a wholly-owned, non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124 and is for general information only. Count advisers are authorised representatives of Count. Count is a Professional Partner of the Financial Planning Association of Australia Limited.
Information in this document is based on current regulatory requirements and laws, which may be subject to change. While care has been taken in the preparation of this document, no liability is accepted by Count, its related entities, agents and employees for any loss arising from reliance on this document.
Taxation considerations are general and based on present taxation laws, rulings and their interpretation and may be subject to change. You should seek independent, professional tax advice before making any decision based on this information.
Case studies in this presentation are for illustrative purposes only and do not represent actual returns. Individual circumstances may vary and this will alter the outcome.
This document contains general advice. It does not take account of your individual objectives, financial situation or needs. You should consider talking to a financial adviser before making a financial decision.