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NewsLAST WORD ON THE BUDGET
LAST WORD ON THE BUDGET

LAST WORD ON THE BUDGET

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Last updated by Ian Town on

Last Word on the Budget for FiftyUp Club members -By our resident financial whiz Ian Town

One of the big talking points around the budget has been the proposed changes to Superannuation and in particular the retrospective nature of some of the coalition’s policies.

Bill Shorten’s budget reply sharpened the difference between Labor’s approach and the coalition’s in this area, saying “This is a matter of principle for us. Labor has very grave concerns about retrospective changes”.

Taken at face value, this would mean Labor’s support for policies such as the announced $1.6 million cap on tax free superannuation in retirement, the 15% tax to be applied to transition to retirement pensions and the $500,000 lifetime concessional contribution cap would only extend to their application to new pensions and future contributions, and not to existing superannuation and retirement funds.

The changes to super certainly resonated with members who contributed to our poll this week. 50% said that “The Government needs to stop moving the goalposts” on superannuation Take the survey here

What the budget proposals do offer is additional flexibility in allowing more people to contribute to superannuation tax effectively. However this is offset by the fact that they also cap and in some cases reduce the maximum amounts that can now be contributed, and also place additional taxes on some existing retirement funds.

While on balance there are perhaps more pluses than minuses in the proposals, some pre-retirees and retirees - who may not consider themselves particularly wealthy - could be quite adversely affected by some of the proposed changes.

Here’s a summary of the PLUSes and MINUSes we see:

Pluses

  • Removal of the 'work test' for those aged 65-75: A big plus for people looking to get money into super later in life - perhaps from downsizing or receiving an inheritance - as they can now make contributions to superannuation regardless of their employment status provided they have room under the new lifetime cap discussed below.
  • Removal of the '10% earnings test": This will allow anyone to make personal deductible contributions to super regardless of employment status. It will benefit those who may be partially self-employed and partially wage earners and currently have difficulty maximising their contributions
  • Allowing catch up concessional contributions: Unused portions of the annual concessional - or tax deductible - contributions cap can now be carried forward for 5 years commencing from July 2017 onwards. This will help those who experience variable cashflow on the run in to retirement as well as people taking time out of the workforce
  • Earnings on deferred lifetime annuities will now be tax-free: This product allows people to buy a lifetime guaranteed income stream commencing at some point in the future - perhaps age 75 or 80. The introduction of these products will increase choice and flexibility for those looking for peace of mind in later retirement

Minuses

  • Earnings on transition to retirement  (TRIS) pensions will be taxed at 15% from July 2017. TRIS pensions are widely used vehicle for those aged 55 and over and still working, and investment earnings on these pensions are currently tax-free. This could reduce the effectiveness of the TRIS pensions particularly for those aged 55-60. This measure applies to both existing and new pensions effective from July 1st.
  • A lifetime cap of $500,000 for non-concessional - i.e. after tax - contributions to super: The introduction of the cap will be effective immediately and apply to all contributions made since 2007. It will affect those who had been planning to sell assets - perhaps an investment property or downsizing the family home - and top-up super to fund their retirement as contributions made in the previous 10 years may have already used up some, or all, of their cap.
  • The concessional - i.e. pre-tax - contributions cap will be reduced to $25,000 in 2017-18: This will impact those pre-retirees looking to top-up super as they approach retirement. We estimate it could cost working couples who had been looking to take advantage of the previously higher cap between $3,000-$5,000 per annum in additional tax, depending on their tax bracket, to get the same amount of money into super. The current concessional cap is $35,000 for those aged over 50 and $30,000 for those below.
  • A $1.6 million cap on "tax-free earnings" on superannuation balances in retirement. This change has grabbed a lot of the headlines - primarily because it applies retrospectively to current retirees as well as those yet to enter the retirement phase. However in reality it will affect only a small number of people applying to less than 1% of current superannuation balances

Ian Town is a Certified Financial Planner and an Authorised Representative of The FiftyUp Club and One Big Switch. Information contained in this article is general advice only. It does not take account of your personal circumstances and needs. If in doubt about your personal situation or needs you should seek financial advice. 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

 

 

Originally posted on .

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Someone
Someone from WA commented:

I see that we will now be bulk billed on blood tests etc. which is a good move 

Bill
Bill from NSW commented:

Bill of NSW When we were on Holidays last year we spoke to retired people from England and New Zealand where it does not matter how much you have hot in the Bank, Super or Capital you still get the full pension. Here we are asked to save for our retirement so we still pay for a pension that we will never get (no reduction in tax here for this group that chooses to work for their keep). We are also taxed if we choose to do salary sacrifice at 15%. Now it looks like we were all scammed as if you opted not to do clubbing, poker machines, restaurants, smoking and put some money away for retirement the present government sees it a cash cow and wants to dip into it, were is the reward for hard work. But if you pixxed up all your money or stayed on the benefits all you life there is a fully funded pension waiting for you. You can even come here from another country never work or pay any tax, live on benefits and again a pension is waiting for you that I will never get but paid for it sine 16 years old. I am lucky because I could keep a job and others need my money more then me. This is only the start as they will move the post again & again until 0.8 million should be taxed or even less. Is this fair to screw the working middle class. We need the middle class party, can some please start one up to represent the majority and not the minority two party system 

Boris
Boris from NSW commented:

I would like to see our politicians living on earnings from a $500,000.00 investment Balance on their pension funds. I think that this arbitrary figure has not been thought out and will lead to tremendous hardship. Surely this figure should have been in line with the $ 1,600,000.00 cap for pension earnings tax cut-off. As t stands the $500,000.00 makes no sense and long term will through many more retirees into the state pension group, leading to a negative revenue outcome. I strongly advocate that THE FIFTYUPCLUB needs make strong representation on behalf of its members to have the $500K changed to $1,6M to make sense at all. I srongly resent the retrospective assault on our retirement planning, We certainly never intended to become a retirement burden on government but with these changes this is likely to happen. A $500K pension fund yielding 5% translates into a pension income of $15,000.00. Ask Mr Turnbull if he can live in Australia on a $15K per annum pension. Please seriously consider this horrible prospect awaiting Australia's retirees. 

Maureen
Maureen from NSW commented:

My husband and I both turn 60 at the end of this year. We don't know about transition to retirement pensions. We only have about $300,000 between the two of us and I was wondering how the new changes to super are going to affect us. 

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