The Federal Government has made significant changes to its superannuation package, including dumping plans for a backdated, lifetime cap of $500,000 on after-tax (non-concessional) contributions.
Mercer Minute: financial adviser Sean Cummins outlines the changes in 60 seconds
The proposed $500,000 cap, which would have been backdated to 2007, has been replaced by a yearly after-tax contributions cap of $100,000.
The Government still plans to introduce a $1.6 million limit on the amount of super that can be transferred into, or remain in, a tax-free pension account.
Mercer Financial Advice leader Michelle Smith says the changes won’t apply until 1 July 2017, allowing a “window of opportunity” for many customers to make the most of existing rules.
“People who were on hold from Budget night, pending the resolution of the lifetime cap, may now consider after-tax contributions strategies,” Smith says. “Those strategies include the existing bring forward rule that allows non-concessional contributions of up to $540,000 in one year.”
From 1 July 2017, those with a superannuation balance of more than $1.6 million will no longer be eligible to make after tax contributions.
Those with smaller balances will be able to contribute up to $125,000 each year – including a maximum $25,000 before tax (concessional) and $100,000 after tax. Using the bring forward rule, they could contribute up to $325,000 in any one year.
Treasurer Scott Morrison says replacing the lifetime cap with a $100,000 annual cap will cost the Budget $400 million in revenue over four years.
To make that money back, the Government has scrapped a proposal to remove restrictions on people aged between 65 and 74 wishing to make voluntary contributions to their super. It has also delayed plans to allow people with interrupted work patterns to roll over unused concessional contributions, from July 1, 2017 to July 1, 2018.