Understanding the 2017 superannuation changes
Superannuation | 11/01/2017 |
3 min read
The Federal Government spent much of 2016 discussing superannuation reform. The accompanying legislation made its way through parliament towards the end of the year, with Treasurer Scott Morrison describing it as a fairer and more flexible approach to super.
"This represents the most significant change to protect the flexibility and ensure the sustainability of superannuation in more than a decade," he said at the time. "It will enable the system to be future proofed."
With the changes due to take effect on July 1 2017, Australians have six months to adjust their retirement strategies. Read on to find out if you’ll be affected, and what you can do in response.
Who will these changes impact?
Broadly speaking, the upcoming superannuation changes will affect anyone who falls into one or more of these categories:
1. You make more than $25,000 in contributions annually
2. You annual income exceeds $250,000
3. You have a super balance that exceeds $1.6 million
4. You plan to make large voluntary contributions
What are the main changes?
- There’s a reduced cap on your concessional super contributions
From July 1 the amount of annual pre-tax income you can contribute to your super will be reduced to $25,000. This money is taxed at a flat 15%. Anything higher will be taxed at your marginal tax rate. The previous cap was $30,000 (or $35,000 for people over 50).
- A pension cap of $1.6 million will be introduced
Investment earnings in pension accounts are not taxed. From July 1 the maximum amount of money that can be held in these accounts will be capped at $1.6 million. Retirees with larger balances will need to house their savings in other accounts, where earnings may be taxed.
- Non concessional super contributions will be reduced
There is currently an $180,000 annual limit on (after tax) contributions to your super. This will be reduced to $100,000 per annum.
- High income earners will face higher tax bills
Australians who earn over $300,000 a year and make pre-tax contributions to their super are currently taxed at 30% for concessional contributions (rather than the standard 15%). The new laws reduce the income threshold to $250,000, and means more (high income) Australians will be paying the higher tax rate.
- Transition to Retirement Pensions will lose their tax exemption
Designed to help people aged 55-64 transition into retirement with part time work, a Transition to Retirement Pension (TRP) provides tax free investment earnings. The incoming changes will end this, with investment income taxed at 15%.
What can I do before July 1 2017?
The new rules are primarily designed to impact high income earners and those with considerable savings. If you fall into these categories there are a number of things you can still do ahead of the July 1 date.
1. The before-tax contribution cap is $30,000 (or $35,000 if you’re 50 years and older) until July 1. It will then drop to $25,000. Contributions in excess of this will be taxed at the concessional rate applicable to you.
2. The annual after tax contribution cap is being reduced from $180,000 to $100,000. If you have savings available, you can contribute an additional $80,000 towards super and a more favourable tax environment up to June 30.
3. Additionally, if you’re under 65, you can bring forward three-years-worth of after-tax super contributions up to a maximum of $540,000. After July 1 this will reduce to $300,000.
4. If you hold over $1.6 million in your pension account you will need to look at ways to divest your money elsewhere. One potential option is to transfer funds into a spouse’s superannuation fund.
For more information about the upcoming superannuation changes, and how you can best respond, please consider speaking with an Equip financial advisor. You can find more details about the services offered and associated costs here.
This information is provided for general information only. It does not take into account your personal objectives, financial situation or needs and should therefore not be taken as personal advice. You should consider whether it is appropriate for you before acting on it and, if necessary, you should seek professional financial advice. Before making a decision to invest in the Equipsuper Superannuation Fund, you should read the relevant Equip Product Disclosure Statement (PDS). Past performance is not an indication of future performance. Issued by Equipsuper Pty Ltd ABN 64 006 964 049 AFSL 246383.