Twilight Seminar: Superannuation – protecting your retirement in a year of change

At the fourth and final Twilight Seminar of the year, Garvin Jones, Director, Superannuation & Business Solutions, spoke on the key reforms to the superannuation environment and what they mean when it comes to protecting your retirement.

With changes to contribution limits and pension caps being the main topics of concern, Garvin explained the implications they have on retirement planning and how to best get your superannuation house in order before the new rules come in. Here, in a nutshell, are the Superannuation reforms taking effect from 1 July 2017:

Concessional contributions: The income threshold at which high-income earners pay additional contributions tax will be lowered from $300,000 to $250,000. The annual cap on concessional superannuation contributions will also be reduced to $25,000. If you’re under the age of 65 – or between 65 to 74 and meet the work test – you will be able to claim a tax deduction for personal super contributions up to the concessional contributions cap.

Non–concessional contributions: If you have a balance of $1.6 million or more, you will no longer be able to make any non–concessional contributions. If you have less than $1.6M in super, the annual cap on non–concessional contributions will be lowered to $100,000 Those under 65 will still be able to bring forward up to three years of non–concessional contributions using the bring forward rule.

Low Income Superannuation Tax Offset (LISTO): The LISTO effectively refunds the tax paid (up to $500) on concessional contributions for those with a taxable income of $37,000 or less.

Catch–up concessional contributions:  From 1 July 2018 individuals with a total superannuation balance less than $500,000 before the beginning of a financial year, will be able to carry forward unused concessional cap space (of up to five years).

$1.6 million pension transfer balance cap: This is the total amount of accumulated superannuation you can transfer into the tax–free retirement phase.

Extending the spouse tax offset: Currently, the tax offset is $540 for those who make superannuation contributions to spouses with incomes up to $10,800. This will be raised to $40,000 providing the receiving spouse is under age 70 (or between 65 to 69 and meeting the work test requirements).

Transition to retirement income streams (TRIS): There will no longer be tax exemptions for income from assets supporting TRIS. These earnings will now be taxed concessionally at 15 per cent. You will also no longer be allowed to treat certain superannuation income stream payments as a lump sum for tax purposes.

Death benefits: Lump sum death benefits paid to eligible dependents will continue to be tax free.

So, when it comes to these new changes, there’s some good news…and some not so good news. It was a lot to digest, and many questions were raised. Here, Garvin answers a few of the main concerns arising from the evening.

Q. I’m pretty close to the $1.6M limit.

A. There is no issue with having more than $1.6M in super, but you will be limited to having a ‘pension account’ of $1.6M. The balance can remain in super as an accumulative balance. After July 1, 2017 if your super balance is close to $1.6 million you’ll only be able to bring forward the annual cap amount for the number of years that would take your balance to $1.6 million. For example, if your super balance is $1.45 million, you can make an after-tax contribution in the 2018 financial year of $200,000 (using the bring forward rules). But you won’t be able to contribute the last $100,000 as it will take you over the $1.6 million cap.

Q. What are the new tax implications on my super fund if my husband dies?

A. Superfund monies going from spouse to spouse on death will continue to be tax free.

Q. I’ve got an accumulation fund, a pension fund and a defined benefit fund, so I’m going to go over the $1.6M limit. How will money from the defined benefit fund be taxed?

A. You can still access your money with no problems. You currently pay tax on the defined pension at a concessional rate, so it’s not tax free to you. However, the tax concessions are going to be wound back so you’ll be paying a little bit more in tax personally. It will also limit your ability to take a pension from your other superannuation balances due to the $1.6M cap

Q. I’m single. As it stands now, when I die, my estate will be forced to pay an additional 15% in tax. Will there be any changes to the tax single people pay on their death?

A. Unfortunately no.

Q. I’m thinking about opening up a self-managed super fund. Is this a good idea considering the new rules? Should I stick to a managed fund?

A. There’s some consensus that these changes will create a bigger push for people to open self-managed funds. With non-concessional and concessional caps being reduced under the new rules, it’s going to be harder to get money into your super fund. A self-managed fund however, will let you do some gearing, which would allow you to grow your funds more quickly. If you’re prepared to take on the risk, then a self-managed super fund is a good option.

Q. How can I maximise my super contributions before the new caps come in?

A. This is where the bring forward rule comes in for people under age 65 which allows them to pay up to three years’ worth of non-concessional contributions in one year (and then make no, or limited contributions, for the next two years until you reach your three-year cap). Take advantage of the existing caps before 1 July 2017, and you can contribute up to $540,000. Wait until after this date, and you may only be able to contribute up to $300,000.

Thank you to all who attended. All in all it was a great evening, with many attendees taking the opportunity to enjoy a drink or two at the reception afterwards – in fact, it seemed like no one was in any rush to leave! Thank you also to those who responded to our survey. We were delighted to learn that 79% rated Garvin’s talk as being > 9 out of 10 on a scale of usefulness; and 100% of those surveyed said they would recommend Twilight Seminars to others. We also received some great feedback on topic suggestions for future seminars.

If you would like to view Garvin Jones’ full presentation on the 2017 superannuation reforms you can view it here on Slideshare.

We hope to see you at the next Twilight Seminar.