After a period of great uncertainty, in recent weeks the Federal Government has finally released the details of its planned changes to the superannuation rules.
Two steps forward, one step back
“If you improve or tinker with something long enough, eventually it will break or malfunction.” Arthur Bloch, American author
However, a major negative development is that it appears that superannuation will remain a political football heading into the next political cycle. Instead of the $100k annual non-concessional cap announced by the Government, Labor has announced it supports a lower $75k annual non-concessional cap.
What this means for an individual and a couple – under the proposed Government rules as they stand now (remember they have not as yet been passed by the Parliament), an individual can contribute $100k each ($200k in total for a couple) as a non-concessional contribution to their super. Using the bring forward, they can potentially contribute 3 times that amount ($300k or $600k combined for a couple) in a single year (but then cannot contribute anything for the following two years).
Under Labor’s counter-proposal, the $100k annual non-concessional cap is reduced by 25% to $75k (or $150k combined for a couple). Under this scenario, using the bring forward, they can potentially contribute 3 times that amount ($225k or $450k combined for a couple) in a single year (but then cannot contribute anything for the following two years).
In addition, Labor has sought to outbid the Government on the level at which the high-income super contribution tax rate of 30% cuts in. It currently kicks in for those earning $300k or more, the Government has proposed it apply for incomes of $250k or more. Labor’s counter-proposal is that it apply for incomes of $200k or more.
The cynics in us think that if the Government had proposed it apply for incomes of $200k or more Labor would have come back with a counter-proposal is that it apply for incomes of $150k or more. Sadly, the changes to superannuation are starting to seriously feel like a political football that politicians enjoy punting around. To use a another metaphor, super seems to have become a big stick that both parties seem intent on using to hit each other over the head with. The only losers in this hodgepodge football stick match are those poor suckers trying to plan for their dream retirement.
Note: The high-income super contribution tax rate of 30% represents the normal 15% super contribution tax rate plus an additional tax of 15%.
On behalf of our wonderful clients, we ask when will this tinkering by politicians with super ever end? The worst outcome is the uncertainty that this tinkering creates. The uncertainty leads to difficulties in making incredibly important long term financial decisions that will have a material impact on their lives in retirement.
What we are doing for our clients
Irrespective of the ongoing tinkering, we continue to analyse each client’s personal circumstances and are providing our best advice to those we know are impacted by the super changes. We have a good solid period of 7-8 months before many of the super changes are set to commence and we are advising accordingly. If you have any questions on the super changes and what they mean for you, please let us know.