Contributing to Super – Prebudget 2016

Treasurer Scott Morrison delivers his budget address (on Tuesday, May 3). Before the Government clarifies its policy intentions, there is still time to make and implement decisions which could help reduce the adverse impact of any changes. This is especially relevant for superannuation strategies that could be subject to major changes to generate budget savings.

We believe this year the situation is different from the usual speculation, in that if the rumours are correct there is a high possibility of changes to retirement incomes applying from budget night.

In general terms any changes to retirement incomes policy usually have grandfathering provisions, meaning that anything that is implemented prior to the budget continues to operate post budget, unaffected by any changes in legislation.

On that basis the prudent approach if you are contemplating making contributions or starting your pension is to do it before budget night.

Pre-budget speculation has focused on the possibility of a reduction in the annual concessional and non-concessional contributions caps and the ability to start a tax-free transition to retirement (TTR) pension while still working.  For people aged under 65 and eligible to make a non-concessional super contribution of up to $540,000 by bringing forward two future years contributions, a budget change could see this opportunity significantly reduced.

Remember currently contributions are subject to the capping rules whether made pre or post the budget.

A transition-to-retirement (TTR) pension allows you to access your superannuation without having to meet a ‘full retirement’ condition of release. Between the ages of 55 and 60, income from a TTR pension is taxed at your marginal tax rate less a 15 per cent tax offset. At age 60, it’s tax free. You can work full-time and still access your TTR pension.

Investment earnings funding your TTR pension are also tax-free.

What should you do now?

If you are considering making contributions or accessing pension benefits, we strongly recommend you contact either Allison Hyland or David Alcorn at Morrows Private Wealth to discuss which strategy may be appropriate for you.