Superannuation is changing, this is assured given with both sides of politics seeing this as part of a broader change to our overall taxation system. Superannuation is a highly politically charged area as it affects everyone, none more than those who are already retired or are close to retirement.
One way or another, changes will be announced in the May budget and implemented subject to the Government being re-elected. Changes of the magnitude expected should not be retrospective, but it is important for people who may be directly impacted to review their current arrangements and see if there is anything that should be done prior to the budget.
Everything right now is pure speculation, but some of the possibilities are:
- Changes to the contributions tax from a flat 15% to a more scaled rate based on marginal tax rates. Ensuring that concessional contribution caps are fully utilised this financial year is advisable. Any tax change will make alternative structures such as family trusts or just paying down the mortgage more attractive for younger people in stead of salary sacrificing into super.
- Restrictions on transition to retirement pensions. This is a widely used strategy to reduce tax, so if you are over age 55 then running the numbers on starting one before May is worth considering.
- Taxes on earnings in superannuation. The Labor party tried this when it was in power and failed with an unworkable model, but some form of taxation of pensions in the future is possible. However, this would be difficult for a Government to take to an election and superannuation will still remain the most tax effective structure for investment.
- Limitations on superannuation contributions. This would be easy to implement with a view to restricting a high net worth family loading up their asset inside superannuation. Therefore, in certain circumstances we are encouraging clients to bring forward planned non-concessional contributions as these may be restricted in the future.
Its difficult to say which direction the Government will take and I have shared just a few examples. Politics is s major part of the overall play, the Government needs the money and the opposition will oppose everything and will claim they are acting in the best interest of the economy. If the latest reports about changes to the GST coming off the table, then this will put the emphasis squarely on superannuation and spending cuts. Either way, a review of your circumstances and how superannuation is part of your overall wealth strategy is advisable prior to the May budget.
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.