The Federal Government’s Budget handed down on 3 May 2016 has proposed major changes to superannuation on a scale not seen since the introduction of the Simple Super reforms of July 2007. Most of these changes apply from 1 July 2017 so you have just over a year to plan. The reforms may be modified or withdrawn before they become law.
These changes will have the dual affect of both reducing the amount of savings that can be accumulated into superannuation and reducing the current tax concessions available to superannuation savings.
What is surprising is the retrospective nature and the severity of the changes which are targeted mainly at high wealth retirees and high income earners.
Despite the changes proposed in the Budget, superannuation is still by and large a very tax effective structure in which to accumulate retirement savings. The changes will have an impact on those already holding significant savings in superannuation but should not deter others from continuing to build their superannuation savings.
On the positive side the Government will not increase the tax rate on earnings in superannuation which will remain at 15% in accumulation phase or 0% in pension phase (up to balances of $1.6 million). Pension and lump sum payments to those over age 60 will continue to be tax free.
What is concerning is that these changes, in particular the $500,000 lifetime cap on non-concessional contributions and the $1.6 million cap on pension funds, are retrospective and will introduce more complexity into the superannuation system in terms of administration and interpretation. Superannuation for many people will be more complex and professional advice should be sought before undertaking any superannuation, tax and retirement planning.
As in the past, self managed superannuation funds will provide the most flexibility and control to ensure your family position can be maximised. But don’t rule out the use of other investment structures, such as family trusts, to really maximise your wealth.