Time to get your head around super

Sweeping changes to superannuation, including the controversial introduction of a $1.6 million cap on pension amounts, are to be introduced on July 1.

The changes, hailed as the biggest in a decade, will have significant implications for both young and old super holders, so it’s time to get familiar with them well before the end of the tax year, warns NAB head of SMSF, Gemma Dale.

“Not since 2007 has the superannuation industry seen so many changes,” Dale said.

“People are only coming to grips now with how far reaching they are,” she told Yahoo7 Finance.

Also read: Industry vs bank-owned super: which is best?

The biggest and most controversial change will be the introduction of a $1.6m cap on pension amounts, which caused uproar when announced last year. The non-concessional (after tax) contributions cap has also been cut to $100,000.

The drop in contribution caps will impact a large number of people, compared to the previous concession where you could do what you wanted.

“But there are some great opportunities for people to take advantage of from 1 July, such as the ability to claim a personal deduction for contributions as an employee,” Dale added.

Investors who are planning to retire in the coming years and don’t take advantage of the current contribution caps could be prevented from contributing hundreds of thousands of dollars to super. And in turn, miss out on receiving a tax-effective retirement income on these amounts.

In addition, the ability to claim a personal deduction for contributions as an employee

could mean thousands of dollars in benefits for super holders.

There are also benefits for younger superannuants, who generally think that super changes don’t really impact them.

“Things like the ability to claim a personal deduction, the carry forward of unused concessional caps and the higher spouse contributions could mean many thousands of tax-advantaged savings for those who take advantage,’’ Dale said.

Key superannuation changes coming into effect in 2017:

· Introduction of $1.6m cap on pension amounts

· Reduced concessional (pre-tax) contributions cap to $25,000pa

· Reduced non-concessional (after tax) contributions cap to $100,000pa

· Prohibition on making non-concessional contributions for those with more than $1.6m in super/pension

· Reduced threshold for increased super contributions tax ($300k to $250k)

· Catch-up contribution caps for those with broken work history or irregular income patterns

· Removal of 10per cent test (so employees can claim a deduction for personal contributions without having to salary sacrifice)

· Increased income threshold for receiving spouse when claiming tax rebate on spouse contributions from $13,800 to $40,000

· Removing the tax-free status of transition to retirement pensions.