5 things to prepare you for the proposed changes to superannuation announced in the Federal Budget

29 June 2016

1. Tighter limits to be placed on contributions into super:

  1. Concessional Contributions:  Annual cap to be reduced to $25k (AWOTE-Indexed) from 1 July 2017.  Some catch up allowances will be allowed for those with a balance under $500,000.
  2. Non – concessional contributions: To be reduced to a lifetime cap of $500,000 with immediate effect (also AWOTE-indexed) from 7.30pm 3 May 2016.  It takes into account all non-concessional contributions from 1 July 2007.

2. Super pension funds

  1. $1.6m ‘transfer balance’ cap to be set as at 1 July 2017 including for existing members.  Any excess to be withdrawn or transferred to the ’15 taxed’ accumulation phase.  Individuals who breach the cap will be subject to a tax on both the amount in excess of the cap and the earnings on the excess amount.
  2. Tax exemptions will be removed from 1 July 2017 on income earned on pension fund assets that support transition to retirement pensions (for those aged 55 to under 65, an not yet retired).   Tax rate will be 15% as is in accumulation phase.

3. Lower threshold before 15% x 2 = 30% (Division 293) contributions tax kicks in.

  1. Threshold to reduce from $300,000 to $250,000 from 1 July 2017.

4. Work test removed for contributions up to age 75.

  1. Currently a work test applies (minimum 40 hours over 30 consecutive days) if super contributors are between age 65 and 75. This will be removed from 1 July 2017.

5. Retirement Income products tax exemption to be extended

  1. Government will remove tax barriers to the development of new retirement income products from 1 July 2017 such as deferred lifetime annuities and group self annuitisation products.
  2. Involves longevity risk for product providers.

It may be time to explore your options. Investment bonds may be the solution you’re seeking.

Investment Bonds

  1. There are no limits on what can be contributed to an investment bond provided contributions in year 2 do not exceed the 125% contribution rule
  2. Tax rates of the fund are capped at the fund rate (currently a maximum of 30%). If investors withdraw after 10 years proceeds are tax paid.
  3. The 2016 Federal Budget cuts down tax rate to 25% – may also be expected to see a reduction in the investment bond tax rate.
  4. Investment bond beneficiaries can be nominated and are not restricted to dependants.
  5. Investment Bonds offer bankruptcy protection.
  6. Unlike super no tax file number is required to be quoted by the investor.