Don't Count Your Chickens Yet
Yet again retireme
nt incomes policy has dominated the Budget with what’s been billed the largest change to superannuation for 10 years.
But beware of feeling too safe when you read about the hits only affecting the very wealthy and their $1 million plus retirement balances.
Those of more modest means who seek to top up their super may be in for shock when they begin to understand how another little change affects them…
THE HIDDEN NASTY?
Generally the pundits have welcomed the changes as rebalancing the superannuation system concessions away from the wealthy.
Indeed the Treasurer has claimed 96% of Australians with super will be unaffected or even better off as a result of the changes.
I don’t believe I’m in the top 4% of income earners and my super balance is nothing to write home about, but over-50s should be aware of one ‘reform’ which could cost them.
All those aged over-50 can now top up their super to the tune of $35,000 a year out of their pre-tax income with what’s know as the “concessional cap”.
There can be few bonuses money-wise of getting on in life but this is one. The under-50s have a cap of $30,000.
The super system hasn’t been around long enough to allow many over-50s to have enough in their balances. Hence a top-up provision helps.
You’d be forgiven for missing it but both concessions (for over and under 50s) will now be cut to $25,000 by July 2017.
In the later years of your working life that can make a big difference. Many average wage earners once they have paid off the mortgage and the kids have left home plan to make such payments.
If both members of a couple are working the $10,000 reduction in the cap could end up costing them around $3,000 - $5,000 in additional tax, depending on their tax bracket, to get the same amount of money into super.
It’s not a question of how ‘rich’ you are. There are all sorts of reasons why someone over 50 has to top up their super.
As Wednesday’s The Australian reported on the front page, it’s “….a highly controversial move that limits the scope of all workers to build up their retirement nest eggs.”
I’m waiting to hear from my financial planner (and yes it does make sense to have one so long as they are properly trained and trustworthy), to get to grips with the impact on my plans.
Click Here to take our Budget & Election Poll and have your say on the changes
WHAT’S NEXT?
Meanwhile there’s billions of dollars more in savings and spending cuts still to be announced before the planned July 2 election, so don’t count your chickens just yet.
Treasurer Scott Morrison hasn’t taken the advice of FiftyUp Club members who in the Club’s Budget & Election poll said the government ‘needs to stop moving the goal posts.’
Last year Joe Hockey tightened the eligibility for the aged pension, which saw some 325,000 older Australians lose some or all of the part pension.
This year it’s a smaller and much wealthier group who are losing some tax concessions around super and a wider group who’ll also pay more to top up their next eggs.
In the FiftyUp Club Budget & Election Poll so far you’ve told us:
- Almost 49% want governments to ‘stop moving the goalposts’, and
- Another 14% say ‘Leave them alone, it’s their money and they saved it’, but
- 30% argued the tax breaks ‘are not fair and should be cut back.’
As with last year’s budget it took a while for older Australians to appreciate the impact of the pension eligibility changes.
Expect more of the same this year. Many who would not see themselves as the super-wealthy may face paying higher taxes and caps around their superannuation.
FiftyUp Club Pty Ltd (ACN 166 905 175) is a Corporate Authorised Representative (AR number 465649) of One Big Switch Pty Ltd (ACN 150 963 474) who holds its own Australian Financial Services License (AFSL 455982) and can provide you with factual information and general advice only. If in doubt about your personal situation or needs you should seek personal financial advice.
