Preparing for retirement? We ask superannuation expert Ben Hall for his top 5 proposed super updates that will affect you.
Now that the election is finally behind us, and the Liberal party has edged into government with a narrow majority, it's time to decipher what the federal budget really means for pre-retirees.
After all, the proposed superannuation changes are wide ranging and generally aimed at helping lower income earners, while cutting back some of the more generous concessions available to those on higher wages.
Who is most affected?
Ben Hall, director of KNP Financial Services, narrows it down to those who are moving into retirement and have a lump sum in their own names. "This could mean you've sold a business or received an inheritance, but are now capped in what can be added to your superannuation fund," he explains.
Further more, Ben surmises the top 5 superannuation changes and remember they are only proposals and still subject to the passing of legislation as being:
1. LIFETIME LIMITS
The introduction of a $500,000, lifetime, non-concessional superannuation contribution cap. "We expect this will be indexed on an annual basis," says Ben. "And, this change will replace the previous cap of $180,000 per year or $540,000 over three years under the 'bring forward' provisions."
2. NEW TRANSFER BALANCE
A new transfer balance cap of $1.6 million on superannuation that can be held in the pension phase is a move to limit the amount of tax-free earnings on your super. "However, any further earnings on your pension account will not be affected, even if the balance goes over $1.6 million," adds Ben.
3. CONCESSIONAL CAP
The government plans to reduce the superannuation annual concessional cap to $25,000, regardless of age. Ben says: "This means, anyone up the age of 75 can claim income tax deduction for personal concessional super contributions up to the proposed $25,000 cap".
4. TAX CHANGES
You can expect changes that reduce the tax-effectiveness of transition to retirement (TTR) strategies. Plus, proposed changes suggest withdrawals from TTR pensions will not be taxed as lump sums. "However, if you are over 60 tax-free pension payments will still apply," adds Ben.
5. CATCH UP CONTRIBUTIONS
The introduction of 'catch-up' superannuation concessional contributions will affect those with super balances under $500,000. "If you have an irregular work pattern perhaps you are a contractor or self employed or a mother who had some time out of the workforce this change is designed to help grow your superannuation. "Unused concessional cap amounts can be carried forward on a rolling basis over a consecutive five-year period," explains Ben.
What's the next step?
"The key advice is, get advice," says Ben.
"Try not to feel overwhelmed by all of these proposed superannuation changes because there are plenty of ways to deal with these updates to ensure you are setup for retirement and can achieve your retirement goals and objectives.
"But, it is worthwhile speaking to a financial expert to make sure your retirement plan is tailored to your needs."