We provide an overview of some important changes to Superannuation from 1 July 2019. Please get in touch to understand how they may relate to you.
Work test exemption
From 1 July 2019, certain individuals aged 65 to 74 are able to make additional contributions to super without having to meet the work test. The exemption is a one-off arrangement and is only available:
– in the financial year following the year the person last met the work test
– to those with total super balance (TSB) of less than $300,000 as at the prior 30 June, and
– to be applied once in an individual’s lifetime.
The exemption could give eligible individuals an additional opportunity to:
– make non-concessional contributions (up to $300,000 if the bring forward is utilised)
– make concessional contributions (CCs), and
– make contributions using small business CGT concessions (up to $1.515m).
Note: The 2019 Federal Budget proposal to increase the age from which the work test applies had not yet been legislated at the time of publication. If legislated as announced, this measure would commence from 1 July 2020, giving those under age 67 the opportunity to contribute without the need to have met the work test.
Catch up CCs
From 1 July 2019, eligible individuals may be able to make CCs above the annual cap, by utilising concessional cap amounts that were accrued and carried forward from 1 July 2018. For example, this means individuals who did not have any CCs in the 2018/19 financial year may be able to make CCs of up to $50,000 in the 2019/20 year. Similarly, if the concessional cap is not utilised in the current financial year, the unused portion of the cap can be carried forward and potentially used in future years.
Amounts are carried forward on a five year rolling basis. Unused amounts which have not been utilised within five years will expire.
To make use of carried forward CCs in the 2019/20 financial year, an individual’s TSB must not have exceeded $500,000 on 30 June 2019. This requirement will need to be met going forward on the 30 June prior to the year
in which the person wishes to make the catch-up contribution.
The catch up arrangement may be beneficial including where an individual has:
– has realised a capital gain and is aiming to reduce or offset the capital gains tax liability by making a
personal deductible contribution
– has not been working for some time, has not made or received CCs during that time and is planning to
catch up, or
– wishes to split CCs to a spouse, by effectively enabling a larger amount to be split.
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 19.7 years and for females currently aged 65 it’s 22.3 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 27% of full-time adult average weekly 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 trillion, which means many Australians may not have enough super to fund their retirement.
Start planning now
Thankfully, with a bit of preparation, it’s possible to plan for a long and comfortable retirement. Strategies like salary sacrificing into super, making lump sum contributions or using a transition to retirement strategy are all smart strategies to consider to boost your super, and some of them generally have tax benefits too. It’s also possible to use your super to start a pension that pays you a regular income. Some pensions even guarantee to pay you an income for the rest of your life, negating the risk of outliving your savings.