Understanding the changes facing superannuation

What the changes to superannuation contributions mean for you.

I turned 61 this financial year and I will continue to work part-time for the next few years until I retire. I have been reading about the changes from July 1, 2017, to superannuation contributions. I am confused about the new $1.6 million superannuation limit. Can you please explain what the changes mean?I turned 61 this financial year and I will continue to work part-time for the next few years until I retire. I have been reading about the changes from July 1, 2017, to superannuation contributions. I am confused about the new $1.6 million superannuation limit. Can you please explain what the changes mean?I turned 61 this financial year and I will continue to work part-time for the next few years until I retire. I have been reading about the changes from July 1, 2017, to superannuation contributions. I am confused about the new $1.6 million superannuation limit. Can you please explain what the changes mean?I turned 61 this financial year and I will continue to work part-time for the next few years until I retire. I have been reading about the changes from July 1, 2017, to superannuation contributions. I am confused about the new $1.6 million superannuation limit. Can you please explain what the changes mean?

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As you are 61 you are eligible to make contributions to superannuation without satisfying a work test. If you were over 65, you would be required to satisfy a work test of 40 hours in a 30-day period in the financial year prior to making a contribution to superannuation. From July 1, there will be additional restrictions on being eligible to make contributions.

It is really important that you are aware of the impact of the July 1 changes. They can be confusing, especially when it comes to how much you can contribute and the introduction of lifetime caps for contributions and pensions.

Effective July 1, the government is lowering both the concessional (pre-tax) and non-concessional (after-tax) contribution caps. The non-concessional contribution cap will be reduced to $100,000 a year from $180,000. There will also be a new $1.6m superannuation balance limit. If your super balance (including pensions) exceeds $1.6m, then you will be unable to make further non-concessional contributions.

Up until June 30, the current rules apply. It will be possible to make a non-concessional contribution of up to $180,000 for one year, or to bring forward three years’ contributions ($540,000) as you are under 64 as of July 1. If you do not use the full limit of $180,000 or $540,000 in the 2016-17 financial year, then you will be limited to the $100,000 annual and $300,000 bring-forward caps for future years.

If you have a super balance (including account-based pensions) exceeding $1.6m, you may be able to contribute into super prior to July 1, after which you will be prevented from doing so.

Under the new world of super, greater consideration needs to be given to funding retirement as a couple. The aim is to remain within your personal $1.6m lifetime superannuation cap while maintaining your eligibility to contribute into super to maximise the benefits provided in retirement phase as a couple, which is also capped at $1.6m a person.

If you are close to, or exceed your lifetime cap and your spouse has a lower balance, strategies such as spouse contribution splitting allow you to transfer 85 per cent of your employer contributions (and salary sacrifice contributions) to your spouse each financial year provided they are under 65.

Not to be confused with the $1.6m superannuation contribution balance cap, the $1.6m pension cap is a limit imposed on the total amount a member who has retired can have in the tax-free pension phase account from July 1. Any funds above the $1.6m cap for pensions must be retained in the accumulation phase. The investment earnings in accumulation phase will be subject to a tax at 15 per cent. This is a significant change as there is currently no cap on the amount of funds that can be held in account-based pensions.

The superannuation rule changes are complicated. If you are concerned about the changes, you should seek advice to ensure you understand the consequences to your personal circumstances. Carefully consider taking advantage of the limited window of opportunity before July 1 to contribute into superannuation.

G ot a query? Go to Your Questions at www.theaustralian.com/au/business/wealth.
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