Why 70 is the new 50: Superannuation change explained

Please note the Government has since revised it’s superannuation reform package.  See the latest update: Superannuation Reform: What it means to you.

The 70s are the new 50s and the recent superannuation reforms don’t just embrace that idea, they positively promote it.

 

70s the new 50sThe Government today released the first tranche of draft legislation enabling the superannuation reforms announced in the 2016-17 Federal Budget – but only the good news. The more controversial changes – the $500,000 lifetime non-concessional contributions cap and the $1.6m cap on tax-free super balances – have been left for another time.

The reforms propose:

 

Removing the work test – greater freedom for over 65s to make voluntary contributions

Please note the Government has since stated that it will not progress with this reform.  The work test will still apply.

Currently, once you reach 65 years of age, your superannuation fund can only accept contributions from you if you pass the work test – that is, you worked at least 40 hours in a 30 consecutive day period in the financial year. 

Once you reach 70, contributions are restricted even further. Not only do you have to pass the work test but the fund can only accept contributions from you or your employer.   And, once you reach 75, only mandated employer contributions can be accepted.

The released reforms remove the work test for those aged between 65 and 75. In effect, this amendment means that individuals aged 65 or above but under 75, are treated in the same way as those below age 65. No changes are proposed for those aged over 75.

The reforms apply from 1 July 2017.

 

Better access to tax effective personal contributions

Aimed at contractors, part timers and self employed, the proposed reforms free up access to concessional contributions for those under 75.

Currently, you cannot deduct personal superannuation contributions if 10% or more of what you earn comes from your employer. The new laws remove the 10% requirement.

The reform means that if you choose to make pre tax contributions to super, you can without your employer offering a salary sacrifice agreement.

In tandem with this change are restrictions that limit when you can deduct personal superannuation contributions to certain defined benefit funds. This includes restrictions on deducting contributions to certain defined benefit superannuation funds and contributions that are not included in the taxable income of the superannuation fund.

 

Topping up your spouses super

The Government wants you to help your low-income spouse top up their super account by freeing up access to the existing tax offset. At the moment, your spouse has to earn $13,800 or less to be able to access the offset. The new rules provide an offset of up to $540 for a spouse earning up to $40,000.

 

New offset for low income earners

Under the new rules, low income earners (under $37,000) will be able to top up their super without paying tax at a higher rate than their marginal tax rate. The offset refunds the difference between the concessional 15% tax on super and their marginal tax rate for contributions they make or made on their behalf. The offset is capped at $500 per income year.

 

Enshrining the concept of super

As the Government points out, superannuation assets have increased from $245 billion in 1996 to over $2 trillion today, representing well over 100% of GDP. Superannuation assets are projected to increase to $9 trillion by 2040. One of the primary concerns, of course, is that superannuation is increasingly used as an estate planning or tax minimisation vehicle.

The proposed reforms enshrine the concept of superannuation as a means to provide income in retirement that substitutes or supplements the age pension.

The focus of the new definition is to limit income from the superannuation system to an age pension supplement or replacement. The sole purpose test is currently broader encompassing the provision of benefits upon retirement or to beneficiaries in the event of a members’ death. This enshrined concept of superannuation provides the framework and rationale for the caps to contributions and pensions announced in the Budget. In fact the draft legislation explicitly states, “As superannuation is not for tax minimisation or estate planning purposes, there will be limits to the level of government support provided.”

 

We have specialist advisers who can work through the superannuation reforms with you to help you be in the best possible position for your individual circumstances. Speak to Matt Pack or me if we can help.

 

The material and contents provided in these blogs are informative in nature only.  They are not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Leave a Comment

Start typing and press Enter to search