Superannuation reforms to level playing field for Australians
The Federal Government has made significant changes to Australia’s superannuation system.
Most measures will take effect from 1 July, 2017.
The changes have been made to improve the fairness, sustainability, flexibility and integrity of the superannuation system.
These reforms aim to make our superannuation system stronger and more efficient, helping to maximise the retirement income of all Australians.
Treasurer Scott Morrison said the reforms were the most significant changes to superannuation in more than a decade and were fair, necessary and sustainable.
“Better targeted tax concessions will make the superannuation system more sustainable as the population ages and fiscal pressures increase,” he said.
“Savings also enable reforms that allow the system to work better for all Australians and increase its flexibility to align with the changing work–life patterns of modern Australia.”
Of most significance, the Government will impose a $1.6 million cap on the amount of tax-free super savings a person can hold in retirement from July next year.
After-tax contributions will also be capped at $100,000 a year.
The Government said the changes will "level the playing field" for more than 800,000 Australians, who will be able to take advantage of their concessional contribution cap from July next year.
The Chamber of Commerce and Industry Queensland (CCIQ) asked the trusted financial planning team at McGregor Wealth Management to share some insights on how this will impact our members.
Super changes at a glance:
- Introduction of a $1.6 million transfer balance cap for retirement
- Removal of tax exemption on earnings for transition-to-retirement pensions (TRIPs)
- Cut in annual concessional (before-tax) contributions cap to $25,000
- Introduction of catch-up concessional contributions over 5-year period (from July 2018)
- Cut in annual non-concessional (after-tax) contributions cap to $100,000
- Continuation of the Low Income Super Contribution (super tax refund)
- Increase in income threshold for spouse superannuation tax offset to $37,000 (and $40,000)
- Tax hike for more Australians: 30 per cent tax on concessional (before-tax) super contributions
- Expansion of tax-deductible super contributions to all Australians
- Removal of option to treat a pension payment as a lump sum payment, for tax purposes
- Removal of anti-detriment provisions
- Extension of tax exemption for other types of retirement products
Rob McGregor, principal adviser, McGregor Wealth Management – Financial Planning Services, said there were some key messages to consider.
“You will need to start planning earlier, due to the lower limits,” he said.
“Anyone with substantial super needs to urgently review their super and their retirement plans in light of the changed legislation.
“And anyone thinking of transferring substantial assets into super needs to get some good advice.”
Superannuation Guarantee (SG) rules have not changed for the 2016/2017 year. Under the SG laws, employers must make compulsory superannuation contributions, and these contributions will increase over time.
The SG laws require employers to contribute the equivalent of 9.5 per cent of an employee’s ordinary time earnings to an employee’s super fund, for the 2016/2017 year.
The current annual SG rate of 9.5 per cent remains in place until 30 June 2021, and will increase to 10 per cent for the 2021/2022 year, and gradually increase to 12 per cent from July 2025.
Without doubt, this package of superannuation reforms involves complex changes which may affect you and your employees’ retirement plans.
The situation is even more complex if you have superannuation benefits in multiple superfunds. This is because all the thresholds and caps apply to your total superannuation balance, not your balance in each individual superfund.
The best advice is to get some sound financial advice well before 1 July, 2017.
For more information, check out the changes here:
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