Some things you should know about the super changes
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Super remains the most tax-effective way to build retirement savings and zero tax applies to pension phase. It will be easier for employees to make tax-deductible contributions in the future, however, contribution caps are reducing from 1 July 2017.
There is a one-time opportunity for total contributions of up to $575,000 before 30 June for some people.
With the concessional cap reducing to $25,000 per annum (tax deductible), the reduction may affect your current salary sacrifice arrangements. Transition to retirement (TTR) strategies should also be reviewed to ensure they are worthwhile post 30 June.
With the new lower caps it's time to review if continuing to fund life risk insurance premiums through super is viable, as there is less "cap space" to build retirement savings.
Changes have also been made to superannuation pensions with a new cap introduced of $1.6 million, called the transfer balance cap.
There is also a new transfer balance account which tracks how much a person has used of their transfer balance cap; where the person has more than one pension all the credits in the transfer balance account will be added together to determine their overall balance.
Where an individual receives both a defined benefit pension and account-based pension, there are special rules that apply when valuing the defined benefit pension.
If the individual exceeds their transfer balance cap, the excess may be withdrawn or revert the excess to accumulation phase (using the account-based pension).
A capped, defined benefit income stream paying $100,000 per annum fully exhausts the transfer balance cap in fiscal 2017-18.
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Genene Wilson is a senior financial planner at Omniwealth, a non-aligned Australian wealth advisory group. This is a financial news article to be used for non-commercial purposes and is not intended to provide financial advice of any kind. Opinions expressed herein are subject to change without notice and may differ or be contrary to the opinions or recommendations of Morningstar as a result of using different assumptions and criteria.
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