Super changes and your Age Pension?
Age Pension and the Super changes from 1st July – how will they impact on you?
We all dream about the day that we can retire! You have worked hard all your life, paid your taxes. Surely you must now be entitled to some support from an Age Pension.
Unfortunately, sometimes our dreams don’t match with the reality of retirement.
A key concern that YOU may have is the fear of running out of money in retirement.
Not only are you dealing with an environment of low returns but also continuous changes with Superannuation and Age Pension legislation. This does have an impact on you if you are retired, but also if you are getting close to retirement.
So what should you do with your Super? Should you withdraw the funds or commence an Income Stream? These decisions are normally made based around your current situation and needs, whilst also considering current legislation. You also need to consider the impact that withdrawing the funds will have on any potential Age Pension entitlements.
There have been some major changes in legislation in the past that may have impacted on your Age Pension entitlements:
- 20th September, 2007 – Term Allocated Pensions no longer available.
- 1st January, 2015 – removal of the favourable ‘deductible amount’ for the ‘Income Test’ on Account Based pensions.
- 1st January, 2017 – Age Pension impacted by the changes to the Assets Test.
There are now some further changes to our Superannuation legislation coming into effect from the 1st July, 2017, which may have a significant impact on You.
- Age Pension Age Increases
- $1.6M ‘transfer balance cap’ to tax-free Super Pensions
- Earnings of TTR Pension subject to super accumulation tax rate
- Super contributions rules changed
Let’s consider these in more detail.
Age Pension Age Increases
The Age Pension qualifying age increases will come into effect from the 1st July 2017 and will see a gradual rise of 6 month increments from Age 65 to Age 67. If you were born after 1st January, 1957 you will now have a qualifying Age Pension age of 67.
$1.6M ‘transfer balance cap’
Effective from the 1st July, 2017 there will be a ‘balance cap’ placed on Super Pensions. If you have a super pension greater than $1.6M you will need to either transfer the funds back to a Super accumulation account or withdraw them. You will need to do this prior to 1st July.
Not only does this change have ‘Tax’ implications but may also impact on you if you are in receipt of a Commonwealth Seniors Health Care Card (CSHC). If you are a Self-funded retiree, you could potentially lose some of your ‘deductible income’ and have this replaced by ‘deemed income’. This could see you exceed the ‘Income Test’ for the CSHC Card and no longer be eligible.
Earnings of TTR Pension subject to super accumulation tax rate
This change will have an impact on you if you are aiming to boost your super prior to retirement or replacing lost income due to moving from full-time to part-time work. Whether there is a benefit in having a TTR Pension will depend on your ability to make ‘concessional contributions’ which will be impacted by the changes to the super contributions rules.
Super contributions rules changed
From 1st July, 2017 the ‘concessional’ contribution will be reduced from $30,000 ($35,000 for those Aged 49 and over) down to $25,000 for everyone regardless of age. This will impact you if you are trying to ‘tax effectively’ build your super balance prior to retirement. Another thing to be aware of is that not only does the ‘concessional’ component include amounts that are salary sacrificed, but also includes the employer 9.5% Super Guarantee component.
More than ever, it is important for you to not only identify your retirement needs but also consider the impact that the changes to our super legislation from 1st July will have on your financial position. So Seek Advice!
If you would like to know more about how these changes could impact on YOU, give me a call on (07) 5531 6296 to arrange a ‘free’ initial consultation.