Super is changing. Should I be concerned?
One of the biggest talking points from May’s Budget ahead of this year’s Federal Election was the changes to superannuation flagged by the government.
With the government set to enshrine the objective of superannuation (if elected) as, “to provide income in retirement to substitute or supplement the Age Pension”, big chances are in the works. But how the changes going to affect normal Aussies?
We look at the changes, what this means for your superannuation, and whether or not you should be concerned. With an election just around the corner, it’s important to make sure you’re voting for the party that is going to be best for your super balance.
What’s new with superannuation?
There are going to be a few things different about superannuation as a result of the government’s changes, which if re-elected will come into effect on 1 July 2017.
- A new super savings cap – One of the changes flagged by the government was the new $1.6 million cap on super you can transfer into a retirement income account. Basically, if you have an account based pension exceeding this amount, you will have to move some of the money back to your super. The government wants super benefits in a taxed environment.
- Transition to retirement arrangements – This popular strategy that allows seniors to reduce working hours and taxable income will be changes from 1 July 2017, with investment earnings on assets in your TRR income account set to be taxed at 15 per cent.
- Easier to work beyond retirement – If you rely on part-time work for supplement your retirement income, the work test will no longer apply for pensioners aged between 65 and 74, aligning with the government’s intentions to push the Age Pension eligibility age to 70.
- Contribution caps reduced – This widely anticipate move ensures a reduction in the annual concessional contributions cap of $30,000 to $25,000.
- Protection for low income earners – A low income tax superannuation tax offset of $500 a year will be provided for people with an income less than $37,000 to ensure they avoid situations where they have to pay more tax on super contributions than on wages.
Should I be concerned?
Much depends on your individual circumstances, and this budget was considered by many to be a “win” for lower income earners. But it’s not rosy reading for everyone. As finance expert Noel Whittaker argues, “I think the changes were shoot from the hip and were done without consultation with the industry – as a result there will be a host of unintended consequences.”
“By placing a cap of $1.6 million indexed on the amount a person can hold in pension mode they have certainly made it clear that this is the maximum they expect a potential retiree to build up in superannuation. The catch 22 is that by restricting the amount a person will be able to contribute, they make it almost impossible for most people to ever reach $1.6 million. Potential retirees will now have to consider other strategies to ensure their money longer than they do – given the fact that rising life expectancies mean a person who retires at 65 has an odds-on chance of reaching 95.”
“Ultimately, it’s important to make sure you’ve consulted a financial advisor. Whether Labour or Liberal win the election you’re going to be affected. It’s important that you make the right decisions for your finances.
Do you think this government’s proposed changes to super are winners, or do they leave a little to be desired? Please let us know in the comments below.
Noel Whittaker is a best-selling author, finance and investment expert, radio broadcaster, newspaper columnist and speaker. One of the world’s foremost authorities on personal finance, Noel recently released The Retirement Living Handbook. Co-authored with Rachel Lane, this handbook provides expert insight into retirement communities.
Related links:
What the 2016 budget means for your retirement
Hidden costs to retirement village contracts
The costs involved with residential aged care