What the recent super changes mean for you
As part of the 2017 Federal Budget, the Government introduced a number of changes to Australia's superannuation laws. If you're retired, or are looking to transition into retirement, we break down exactly what these changes mean for you.
Tax increase for transition-to-retirement pensions
If you plan to retire soon, you might already be using your transition-to-retirement (TTR) pension. For those of you who have reached their preservation age (usually between 55 and 60), the TTR pension allows you to ease into retirement by reducing your work hours and supplementing your income with your super. For those younger than 65, you can access between 4% and 10% of your pension each financial year. This is not available as a lump sum. Instead, it must be paid as a regular income stream. Depending on your super fund, your TTR pension might be paid twice monthly, monthly, quarterly, half yearly or yearly.
The changes: As of July 2017, investment returns on TTR pension accounts are taxed up to 15%, as they would be in your regular super accumulation account. An accumulation account is where your super contributions sit in until you're able to move the money into a retirement phase account, in order to receive your pension. There is no limit on how much super you can have in your accumulation accounts. Please see the ATO website for more information on the changes and how it impacts you.
New transfer balance cap
If you meet the age and income criteria, you're entitled to receive your pension income from a tax-free ‘retirement phase' account. However, the limit, or transfer balance cap, on how much money you can have in your tax-free account has recently changed.
The changes: From 1 July 2017, the transfer balance cap is now set at $1.6 million and indexed by the consumer price index down to the nearest $100,000. The cap applies to the combined total of funds in all your retirement phase accounts. For example, if you receive a pension from a deceased or former spouse's super account, this is included in the capped amount. TTR pensions are not included. Please see the ATO website for more information on the changes and how it impacts you.
Older Australians can downsize their house for tax concessions
For some, retirement doesn't just mean exiting the workforce. While going on to the pension means a reduced income for some people, it's important to remember that you'll need to re-adjust your lifestyle in line with your income. This might mean downsizing your home. As part of a push to help the housing crisis, the Australian Government is encouraging retirees to sell their larger family homes.
The changes: If you're over 65 and you sell your home, you can make a non-concessional (post-tax) contribution of up to $300,000 from the sale into your super fund. This rule comes into effect on 1 July 2018 and is not impacted by the usual voluntary contribution rules, including the new transfer balance cap. If you have a partner, you can each put up to $300,000 from the same sale into your own super account. The contributions must come from the sale of your principal place of residence, which you must have held for a minimum of 10 years.
Transitioning to retirement isn't a one-step process. However, by doing your research and learning what rules and concessions apply to your circumstances, you can make the most of the next chapter of your life.
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