Making sense of the super changes

After backlash from both savers and crossbenchers, the Government came to a compromise last week and shelved one of its most controversial super plans.

The proposal was to cap after-tax (non-concessional) contributions at $500,000 over a lifetime, backdated to 2007. Pre-retirees and retirees who had already surpassed the cap were in a bit of a pickle.

So what’s changed? Instead of $500,000 in after-tax contributions over a lifetime, savers can make $100,000 a year, beginning July 1, 2017. That means there’s still about nine months left to take advantage of $180,000 annual non-concessional cap and the bring-forward rule, which, as the name suggests, allows you to bring forward three years’ worth of contributions ($540,000).

From next year, savers can put in $100,000 in after-tax contributions, but still have the opportunity to use the bring forward rule for three years’ worth of contributions ($300,000), so long as they are under 65. The reaction to the second iteration has been far more positive than it was for the first one. For those wondering how it may work in practice, the Government has released the following case studies:

Kylie’s superannuation balance is $500,000. She sells an investment property and makes a non-concessional contribution to her superannuation of $200,000 in October 2017. As Kylie has triggered her bring forward, she would be able to make a further non-concessional contribution of $100,000 in 2018-19. In 2020-21 her non-concessional contribution caps would reset and she could make further contributions from then.

Molly is 40 and has a superannuation balance of $200,000. In September 2016, she receives an inheritance of $250,000, which she puts into her superannuation. This triggers her three year bring forward, which is $540,000. From 1 July 2017, as the cap has been lowered, Molly can make a non-concessional contribution of $110,000 in 2017-18 and $20,000 in 2018-19. She can then access the new bring forward from 2019-20 and contribute up to $300,000 in non-concessional contributions.

Eamon has a total superannuation balance of $1.45 million. He can make a non-concessional contribution in 2017-18 of $200,000. He cannot access the full three year bring forward as this would take his balance over $1.6 million. Eamon would also not be able to make any further non-concessional contributions.

Gary is a 72-year-old retiree who works around 40 hours in September every year and has a superannuation balance of $450,000. As Gary meets the work test, he can make a non-concessional contribution of $100,000 in 2017-18. However, as Gary is aged over 65 he cannot access the three year bring forward.

Other numbers of note

The controversial $500,000 lifetime cap wasn’t the only reform introduced on budget night to be aware of. Here are the others worth knowing about:

  • $1.6m cap on funds in tax-free pension phase – retirees who have more than $1.6m in pension phase will have to put some of their funds back into accumulation mode. People with more than $1.6m in pension won’t be able to make any more after-tax contributions come July next year.
  • Before-tax cap of $25,000 a year. Currently the cap is $30,000 and $35,000 for people 49 and over.
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