Following from last month’s newsletter article we can confirm that both Houses of the Parliament have passed the budget changes and now we are just waiting on Royal Assent (which is just a mere formality) before the legislation will be enacted from 1 July 2017. The major changes relate to contribution limits, removal of income tax exemption in pension phase for balances over $1.6m, removal of anti-detriment provisions and removal of tax exemptions on Transition to Retirement Pensions. The government has also legislated some CGT transition relief provisions for those coming out of pension phase due to these changes, which may be of a significant benefit to super fund members. Please also remember that we are also currently under the old legislation which is still in force until 30 June 2017. Due to some of the proposed changes you wish to avail yourself of the current legislation especially in relation to contributions etc.
We are in the process of identifying self managed super fund clients that require advice in relation to these changes and are awaiting final regulations in relation to the finer details from the ATO. We will be in contact with those affected clients in the new year.
If you don’t have a SMSF but believe you may be impacted by these changes, or you do have a SMSF and wish assistance immediately, please do not hesitate to contact Matthew Grapsas, Cathy Walley or myself on 5221 6111.
Given the financial demands of everyday life, planning your retirement may be a relatively low priority. You may also think that you have plenty of time to plan. But before you put off planning for your retirement any longer, here are some key facts you should consider.
Your retirement could last 30 years or more
A male currently aged 65 has a future life expectancy of 19 years and for females currently aged 65 it’s 22 years . But these are just the averages and they are increasing steadily. As these trends continue, your retirement could stretch to three decades, or maybe even longer.
You shouldn’t rely on the age pension
The full single rate age pension only provides around 25% of average weekly male earnings. What’s more, qualifying for the age pension may become more difficult in the future, given our population is ageing.
You shouldn’t rely on an inheritance
Your parents may end up spending all their savings and may even need to downsize their home to help make ends meet. So, if you’re relying on an inheritance to fund your retirement, you could be disappointed.
You might not have enough super either
With some of your money going into super through compulsory employer contributions, you’re off to a good start. But assume that those employer compulsory contributions will mean you have enough super to get you through your retirement and you could be in for a nasty surprise. Research conducted by Rice Warner Actuaries revealed that Australia has a shortfall in super of close to $1 trillion2, which means many Australians may not have enough super to fund their retirement.
Many people wait until their home loan is paid off before investing more in super. However, if you are currently making more than the minimum home loan repayments, you may be better off when you retire if you make additional super contributions instead.
There are two key reasons why topping up your super could be a better option.
The first is that home loan repayments are usually made with after-tax money. Alternatively, super contributions can be made with pre-tax dollars (if you’re an employee) or claimed as a tax deduction (if you’re self-employed and meet other eligibility requirements). These concessions can help you use your surplus cash flow more effectively.
The other reason is the amount of concessional super contributions1 you can make each year is far lower than it used to be. As a result, it has become much more difficult to make large tax-effective super contributions just before you retire.
To achieve the retirement lifestyle you desire, you may need to make additional super contributions earlier than you had planned. That way you can take greater advantage of the contribution cap over the remainder of your working life.