Ask Janne: How will superannuation changes affect me?

Hi Janne, I am still confused about the changes to superannuation laws, especially the one about the $1,600,000 pension limit.

Could you please explain this?  

Regards, John
Balgowlah

Hi John, thank you for your email.

I have had a lot of questions about this and as with all changes in superannuation laws, it is important to obtain advice before the end date of the current system. For these changes, the cut-off date is June 30, 2017.

I shall just address the $1,600,000 cap. On July 1 this year, any individual can have no more than $1,600,000 in a pension. Any will need to be rolled to superannuation.

The reason the balance over $1,600,000 needs to be in superannuation is that superannuation is taxed, and pensions are not. This enables the government to increase revenue.

However, there are opportunities. Although you can start with no more than $1,600,000, if you can increase your balance through investment returns, that is fine.

If you have some clever strategies, you may end up with much more in your pension. Furthermore, if one spouse is over the limit and the other is under, as long as the spouse with the lower balance is still eligible to contribute to superannuation, then you may be able to use excess funds in one pension account to top up the other.

Please note that although you cannot add to a pension, you can contribute to superannuation, and then roll that to a pension.

It is important to look at this prior to the end of June.

I had some clients come in recently and they wanted to sell a property and contribute the proceeds to superannuation to fund their retirement. They wanted to know whether it was better to sell in this financial year or next.

The problem was, to get all the money into superannuation, they needed to sell this year, as they may have been able to contribute up to $540,000 each.

To minimise tax, they needed to sell next year when they were retired. I recommended they borrow in June to contribute to superannuation, then sell the house in July to minimise capital gains tax.

You can also store money in superannuation, and use that to top up your pension if the balance falls below $1,600,000, or use it for withdrawals above the minimum pension.

If, for example, you take $80,000 per annum in pension payments (based on five per cent of the balance) and want to go on an overseas trip that will cost you $50,000, you can withdraw the $50,000 from your super and live on the $80,000 from your pension.

There are more strategies available depending on your circumstances. As always, as this is complex legislation, please ensure that obtain professional advice. Please contact your financial planner or call me on 9452 7871.

Regards, Janne