How you can prepare for the superannuation changes

No doubt you’re probably well aware of the changes to superannuation which will come into effect on July 1 next
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No doubt you’re probably well aware of the changes to superannuation which will come into effect on July 1 next year.

If you’re among the tens of thousands of Australians who will be impacted by these changes, then it might seem like a confusing and stressful issue to navigate.

So, what can you do between now and July 1 to prepare for the superannuation changes?

Well, firstly it pays to know your superannuation inside and out.

Make sure all your details are up to date and all your paperwork is in order.

Check what your current balance is, how much you’ve contributed in the past financial year and look at how much you’d like to contribute into the future.

Remember, if you’ve over the age of 65, you can only contribute to your superannuation if you’re still employed.

One of the most talked about changes to superannuation is the introduction of a $1.6 million cap on your total superannuation balance.

If you’re close to or exceeding the $1.6 million cap, there are a number of things you can do to prepare for the changes.

Managing director of financial advisory with Dixon Advisory Nerida Cole said if you’ve got a balance near or above $1.6 million, you’ll be hit the hardest.

“After June 30, if you have $1.6 million or above you won’t be able to put more money into your super account,” she said.

“If you’re in or close to that threshold, you should review your eligibility to make non-concessional contributions to your super before June 30.

“If you’re selling an investment property, downsizing your home or inheriting money, then you may be able to put some of that money into your superannuation.”

While July 1 might seem like a world away, when you’re negotiating through the complexities of superannuation, it can go much faster than you anticipated.

That’s why Cole suggests you get started on planning around the changes now.

“The window between now and June 30 is not that long and you’ll likely need to get advice or talk to an accountant as well,” she said.

“You’ll want time to get everything in writing and consider your options carefully before making decisions.”

Read more: How the superannuation changes could affect your retirement

Even if you don’t have close to $1.6 million in your super accounts, you may still be impacted by the changes.

The limits on how much you can contribute to your superannuation will be lowered from July 1.

That’s why Cole advises some people to contribute as much as they are allowed to before July 1.

“In this current financial year up to 30 June you can add $180,000 of non-concessional contributions or if you are under 65 you can bring forward three year’s worth, up to $540,000, in one go,” she said.

“That figure will reduce to $100,000 per year or $300,00o if you bring forward three years.”

Of course if you’re nearing the $1.6 million balance, you’ll want to get as much money in as you can.

What if you’re still working or a small business owner?

“If you want to make salary or tax deductible concessional contributions the limit for people 50 years of age and over is $35,000 until June 30, but reducing to $25,000 on July 1,” Cole said.

“The number one thing is to think about acting this year – there’s a lot more flexibility this year then there will be next financial year.

“Taking action this year before the changes can be very valuable, you might able to save tens of thousands of dollars.”

Another aspect of the changes taking people by surprise, according to Cole, is defined benefit pensions.

“Even if you don’t have $1.6 million in your superannuation accounts, if you have a defined benefit pensions then the rules assign a lump sum value to defined benefit pensions,” she said.

“A lot of people who wouldn’t have thought they were affected, will find themselves in the higher threshold.”

Will you be impacted by the changes to superannuation?

 

 

 

  1. Max  

    What are the rule changes to defined benefit pensions.

    • Trevor Breusch  

      For DB pensions in payment, half of the amount over $100k pa will be added to your taxable income (so your marginal income tax rate will apply). Also the pension is multiplied by 1.6 to count towards your transfer cap of $1.6m, thereby limiting or preventing the possibility of also having an accumulation account in pension mode. Also the same calculation of 1.6 times the DB pension (or promised pension for those still contributing) is added to any accumulation balances to determine whether total superannuation balance is under $1.6m, which is the condition to permit further non-concessional contributions. Also, for those in unfunded DB plans (such as the Commonwealth CSS or PSS, or some state government schemes) but not yet drawing pensions, the employer liability will be given an inferred contribution value, thus limiting or preventing the members of such schemes in making concessional contributions to other accounts.

      • Neil  

        I am in receipt of a funded DB pension of approx $90K pa. I also have an ABP with a balance of approx $1M. Are you saying that my transfer cap amount is $1M + $144K (1.6 x $90K) = $1.144M ie under $1.6M? Other articles I have read nominate 16 times the DB pension plus any ABP balance to determine the transfer cap.

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