In the last budget, there were many announcements we highlighted that were very unlikely to be passed through both houses of Parliament. Well, it now looks like we are finally getting some idea of the changes that ARE likely to become legislation as there seems to be agreement between the pollies.
I recently had a meeting with my local member to outline the issues relating to the proposed changes, some unintended consequences for some clients and to also give her some feedback from what clients are telling me directly. And yes, it is more than 4% of people. I thought this might have been handy. Hear it from the coalface. Fortunately, she brought her adviser with her. Well, she listened and has replied by sending me a PowerPoint presentation from Scott Morrison (for the pollies) outlining the aging population and increasing future costs to the budgets...sigh. Draw your own conclusion here.
Anyway, here is a summary of the changes announced in the budget that are not yet passed, but are LIKELY to be. I expect that most will come into force July 2017.
- Reduce the maximum super CONCESSIONAL CAP to $25 000 down from the current $35 000 and $30 000 (This will make it harder to save more closer to retirement).
- Reduce the NON CONCESSIONAL cap from $180 000 to $100 000. (They wanted a $500 000 lifetime cap backdated to 2007).
- Introduce a limit of $1.6M to the tax free Account Based Pension. (Balances over this will need to remain in super).
- The EARNINGS in Transition to Retirement pensions (TTR) will be taxed like super instead of being tax free.
- The Concessional catch up provision is delayed until 2019.
- Over 65 year olds contributing to super will still have to pass a work test. This is the same as the current legislation.
Overall, it is a mix of the good, bad and the ugly. The $1.6M tax free cap won’t affect many people and it isn’t really an issue once you work through the numbers. TTR pensions won’t be as attractive and may require a strategy revisit. The reduction of concessional contributions is more of a problem as most clients haven’t saved enough for retirement and are relying on catching up later in their working life by maximising tax deductions and concessional contributions.
With the lower limits, it highlights the need to start planning earlier in order to maximise opportunities.
At your review we will be considering how these changes may affect your individual situation, but feel free to call the office if you would like to discuss.