Super remains the most tax effective way to build retirement savings and zero tax applies to pension phase.
It will be easier for employees to make tax deductible contributions in the future however contribution caps are reducing from 1 July 2017. There is a one-time opportunity for total contributions of up to $575,000 before 30th June for some people.
With the concessional cap reducing to $25,000 per annum (tax deductible), the reduction may affect your current salary sacrifice arrangements. Transition to retirement (TTR) strategies should also be reviewed to ensure they are worthwhile post 30th June.
With the new lower caps it’s time to review if continuing to fund life risk insurance premiums through super is viable, as there is less ‘cap space’ to build retirement savings.
Changes have also been made to superannuation pensions with a new cap introduced of $1.6 million, called the transfer balance cap. There is also a new transfer balance account which tracks how much a person has used of their transfer balance cap; where the person has more than one pension all the credits in the transfer balance account will be added together to determine their overall balance.
Where an individual receives both a defined benefit pension and account-based pension, there are special rules that apply when valuing the defined benefit pension. If the individual exceeds their transfer balance cap, the excess may be withdrawn or revert the excess to accumulation phase (using the account-based pension). A capped defined benefit income stream paying $100,000 per annum fully exhausts the transfer balance cap in FY17-18.
Genene Wilson
Senior Financial Planner
Omniwealth
t: 02 9112 4332
m: 0403 026 800
e: genene.wilson@omniwealth.com.au
www.omniwealth.com.au