Superannuation Reform: Government scraps retrospective $500,000 Super Cap

A contentious package since it’s announcement back on budget night, this week Scott Morrison finally succumbed to the reality that retrospectivity in superannuation is no winning formula.
 
In a calculated move, engineered to increase harmony across both party rooms, yesterday Morrison announced that the proposed $500,000 life-time cap on non-concessional super contributions has been axed.

The revised plan effective July 1, 2017 (yet to be legislated) includes the following changes;
 

  • Lifetime $500,000 non-concessional contributions cap backdated to 2007, as announced in the 2016/17 Budget is now scrapped.
  • The current annual non-concessional contributions cap will be lowered from $180,000 p.a. to $100,000 p.a.
  • Individuals under the age of 65 will be eligible to bring forward 3 years of non-concessional contributions up to $300,000 (previously $540,000).
  • Individuals with a balance of more than $1.6 million, as at 30 June each year, will no longer be eligible to make non-concessional contributions.

This leaves the pre-budget rules in place until June 30, 2017. (Please refer **Update 21/09/2016 bottom of article).
 
The compromise:

  • The work test for individuals aged between 65 to 75 years will remain in place.
  • Plans to allow people with interrupted work patterns to roll over unused concessional contributions from the previous year will be delayed by 12 months.

On the whole the changes spell good news for self-funded retirees.
 
Individuals nearing retirement with plans based on the ‘rules of the day’ are no longer compromised by retrospective policy. The majority of Australians who tend to provide for much of their retirement later in working life (i.e. as ‘other’ obligations decrease) can once again take advantage of contribution strategy and younger workers now have a feasible chance of reaching the $1.6 million pension cap in the first place.
 
There will still be some practical issues in tracking exact balances, especially for Australians with multiple superannuation accounts and the valuation of assets at 30 June each year could also be contentious.  The compromise to leave the work test as is, isn’t all good news for those 65 to 74 year olds who no longer work and have money outside of the super environment (below the $1.6 million limit).  
 

In an environment that is becoming increasingly reliant on Australians to self-fund their retirement, we all seek certainty and confidence in our superannuation system. The bottom –line (pun intended) is, there is no room for constant change and we hope yesterday’s announcement is a step closer to delivering on a more robust and fair system.

If you would like to know more or discuss how this impacts you, speak to your Moore Stephens relationship partner.


*** Update 21/09/2016

The Government has provided further clarity on how the proposed bring forward and the $1.6 million eligibility threshold will work.

Eligibility threshold

Individuals are eligible to make non-concessional contributions where their total superannuation balance is less than $1.6 million. Where their balance is close to $1.6 million, they will only be able to make a contribution in that year and access the bring forward of future years contributions that would take their balance to $1.6 million.
 

Eligibility-Threshold_non-concessional-contributions-_20-Sep-2016.png


Transitional arrangements

Where an individual has made a non-concessional contribution in 2015-16 or 2016-17 and that triggers the bring forward, but has not fully used their bring forward before 1 July 2017, transitional arrangements will apply so that the amount of bring forward available will reflect the reduced annual contribution caps. Where the non-concessional contribution bring forward was triggered in 2015-16, the transitional cap will be $460,000 (the annual cap of $180,000 from 2015-16 and 2016-17 and the $100,000 cap in 2017-18). If the bring forward was triggered in 2016-17, the transitional cap will $380,000 (the annual cap of $180,000 in 2016-17 and $100,000 cap in 2017-18 and 2018-19).

Transitional-Arrangements_non-concessional-contributions-20Sep-2016.png