When we think of retirement planning we think of super. Super is huge. But is super the best way to build assets for retirement? Is there a better way? Has the 2016 Budget really changed the game?
The answer, to get to the point quickly, is no, at least for most people. Under the proposed rule changes most people can now put more into super. The five year contributions catch up rule and the new rule allowing employees to deduct personal contributions in many cases will more than compensate for the lower $25,000 contributions cap.
The extension of the spouse offset and the super tax offset make super better for lower income families. The abolition of the work test between age 65 and 75 helps too.
Most people will not be affected by the new $1,600,000 cap on tax free pension assets. Even if this is the case, franking credits on Australian dividends and the use of other investment vehicles such as family trust will mean the top 4% will still pay very little or no tax at all.
However, there is no doubt that over the last five years the tax profile of super has become less generous. The new rules do limit the ability to accumulate vast amounts of wealth in super, but this should not preclude it being used up to the maximum where practical.
If flexibility and access to funds before retirement age is required, then setting up an investment company owned by a family trust can also achieve similar tax outcomes. Nevertheless, we believe super still remains the most tax effective vehicles for long term investments.
Happy investing.
Rob
Rob Gilmour is the Managing Principal of Wealth Simplicity. The information provided should not be considered personal financial advice as it is intended to provide general advice only. The content has been prepared without taking into account your personal objectives, financial situations or needs. You should seek personal financial advice before making any financial or investment decisions.