Mercer’s Financial Advice Leader, Michelle Smith, discusses what you need to think about now.
Federal Treasurer Scott Morrison introduced sweeping changes to Australia’s superannuation system in last night’s Federal Budget, targeting tax concessions that benefited high-income earners and retained assistance for the lowest paid.
Measures, including a $1.6 million cap on the amount of super that can be transferred to pension accounts, a $500,000 lifetime cap on after-tax (non-concessional) contributions (The Government has since made significant changes to its superannuation package, including dumping plans for a lifetime cap) and a "catch-up" clause on concessional contributions aim to ensure the system is fairer, more flexible and fit for purpose.
Meanwhile, the ‘big ticket’ wealth creation values are untouched: the super concessional tax rate for most remains 15 per cent and pensions remain tax free for those aged over 60.
This Federal Budget has clearly stated that the purpose of superannuation is to supplement or substitute the Age Pension – not for estate planning.
Michelle Smith, Mercer Financial Advice Leader, says a lifetime approach to contribution caps offered an opportunity for Australians to engage in their super earlier.
"People can be more engaged in their wealth strategy earlier, rather than waiting to hit certain milestones closer to retirement," Ms Smith says. "All of the good elements of super are still there but with incentive to start earlier."
The budget proposes lowering the income threshold at which a higher 30 per cent tax rate kicks in, so earners of between $250,000 and $300,000 a year,including concessional contributions to super, will pay 30 per cent contributions tax from 1 July 2017. Currently, only those with an annual income of more than $300,000 pay the higher rate. Everyone else pays 15 per cent.
Concessional contribution caps will also be lowered, to $25,000, from the current $30,000 for under-50s and $35,000 for those aged 50-plus. But the proposed rules will allow anyone with a super balance below $500,000 to carry over five years’ of unused concessional caps, a move that will benefit those who take breaks from paid work, including the self-employed and mostly women.
Support for workers earning less than $37,000 will continue in the form of a tax offset of up to $500 on concessional superannuation contributions, ensuring low-income workers don’t end up paying more tax on their super contributions than they do on their income.
Meanwhile, all individuals aged under 75-years will be able to make concessional contributions to their super and people aged 65-74 will be able to make contributions to their spouse’s account.
Book an appointment with a Mercer financial adviser today.
This information was correct at the time it was published.