Government scraps $500,000 cap

Thanks Laine, I'd say you are correct and the splitting of the $130k was arbitrary.

Having just read the Government's Fact Sheet on non-concessional contributions (Superannuation Fact Sheet 4) I am left confused by "Molly's" scenario.

Can anyone please explain it to me?

40 year-old "Molly" triggers the $540K bring forward rule this year with a $250K contribution, and is then left with $110K and $20K limits in the next 2 years before the new $300K bring forward rule applies to her.

How are these two interim limits arrived at?

I found this puzzling too but I THINK it works like this

Year one Molly contributes $250k. This is her $180k for 2017 and $70k carried forward into 2018.

In 2018 her remaining carry forward from 2017 reduces from the balance of the $540k she could have contributed in 2017 to the balance of the $300k carry forward she is now entitled to. So for 2018 she has $200k left to contribute less the $70k she is ahead by, leaving her with $130k to contribute.

I think the $110k next year and the $20k the year after is just a confusion. As far as I can see she could have contributed the whole $130k in 2018 but then would have nothing over for 2019. In 2020 her three years are finished and she can contribute another $300k if she wants to, or simply $100k per year going forward.

I also thought this a rather poor example as it gave no explanation whatsoever as to how it was derived.

Hopefully we will have some good articles soon on the alternatives and more details of how the carry forward will work.

I'm confused .. what is best option now for me to maximise my after tax contributions.
I am 63 and have not contributed any post-tax contributions this financial year (and less than $20K per year for the last 5 years).
I am due to receive an inheritance shortly .....am I allowed to contribute $150K before 1/July/2017, then $100K each subsequent financial year after that until 65, and so long as I satisfy the work test from 65-74?

Hi David, Cuffelinks is not licensed to give personal advice but we will write more about the alternatives available in the coming week.

Go and see an advisor now, David!

I am not a financial adviser but if I was 63 at the start of this financial year I would put in $540k this year using the three year bring forward rule. This would I think give me the best option.

If I continue to work after 65 I can start contributing again after three years at $100k per year, but with no carry forward allowed as I am over 65.

If I turned 63 after 1 July, I would put in $180k this year, $100k next year and $300k the year after. I would need to make the final contribution early in the year before my 65th birthday. This gives $580k total.

However check all this with a financial planner, or phone the super help line at the ATO, before making your own decisions. This is only what I would do, not advice to anyone else. I may be interpreting the rules incorrectly.

Also note that none of this is actualy legislated yet. It may be changed again.

One issue that doesn't seemed to have been considered in this debate around the "proposed" super changes and holistic retirement planning is the fact you can earn income outside of super up to the tax-free threshold of $18.2K and even to the Seniors And Pensioners Tax Offset (SAPTO) threshold of circa $28K (if you're eligible). Extrapolate that out based on a 5% return (as a base to start from) and that is a considerable amount of capital in anyone's language I would have thought.

Consider also the affect of franking credits which can be used to reduce any net tax payable if your taxable income exceeds those thresholds mentioned above. You may well end up receiving a partial refund of franking credits...

You can still have a sizeable amount of money invested outside of super before you will pay tax on the income those investments derive. People need to consider this in their retirement planning.

Go it alone and without the advice of a good financial professional at your peril...

There are 2 things that seem to emerge from all this:

* there is a desperate need for bi /tri /multi partisan support for a superannuation summit to be give the (not inconsiderable) task of devising the best system in the world designed to be in place, operational and preferably unalterable and untouchable for say 20 years. (Gather the best from everywhere, and let them thrash it out. Submissions open to all.)

* there needs to be legislation in place to protect such a system and reduce or preferably eliminate this incessant tampering that has been a feature in the last 7-8 years, at least.

Obviously a solid, sound super system will benefit the country as a whole. If it is a REALLY good system, it would not need much alteration, and the consistency and predictability would give reassurance to those in and approaching retirement that is sadly lacking now.

(If you feel this might help , please tell your federal MP.)

Does anyone know how the income derived from excess funds diverted from the 1.6M pension fund account to an accumulation account will be calculated. On an actual basis or on a deeming rate?

Hi Graham,

This begs the real question, if we can't trust what is coming from our politicians, why do we continually "put up with them" year after year?

Doesn't matter who wins an election after wasting all that money we all know they are full of BS, why can't they be held accountable by the tax paying public? not the opposition, who has no power or reason to change the current system.

They are only interested in what they can get out of it, for themselves.

So over 75 years we will be forced to have (ie reopened at a cost) a new accumulation account but can't add to it because the work test cuts out at 74 years. This is crazy!

What does this mean for
2016/17? (courtesy of Heffron SuperNews)

Non-concessional contributions of
$540,000 are back on the table.
Clients in a position to make large nonconcessional
contributions this year
should consider doing so while the higher
annual caps (ie, $180,000 for those who
were aged 65 or over on 1 July 2016, or
up to $540,000 under the existing bring
forward limits) are in play. This will be
particularly important for clients who have accumulated
superannuation balances of $1.6m
or more, or will do so prior to 30 June
2017. Under the latest proposals,
they will not be able to make any
further non-concessional
contributions after 1 July 2017
regardless of their age, or work
status. While the proposed $1.6m
pension transfer cap may prohibit the
ability of these contributions to be
housed in an account-based pension
balance, there is often still value in
making the contribution and having
part of the balance remaining in
accumulation phase);

So the Budget night announcements have now changed. Does that mean that the current NCC laws ($180K or $540K using the bring forward provisions) still applies until the new, new laws are passed by the parliament? Or do we continue to hang around in limbo for a few more months?

Looks like the answer is yes!!! If you have not already triggered the bring forward, it looks like there may be a window of opportunity. But unlike the current situation where the applicable limit is what applied in the year you triggered the bring forward, they are going to reset the cap on 01/07/2017 to the new limits. This from the Treasury's Fact Sheet:

************************

Molly is 40 and has a superannuation balance of $200,000. In September 2016, she receives an inheritance of $250,000, which she puts into her superannuation. This triggers her three year bring forward, which is $540,000. From 1 July 2017, as the cap
has been lowered, Molly can make a non-concessional contribution of $110,000 in 2017-18 and $20,000 in 2018-19. She can then access the new bring forward from 2019-20 and contribute up to $300,000 in non-concessional contributions.

*******************

What about those people reaching age 65 and retiring? There was one set of rules for NCC's before the Budget, another set of 'rules' after the Budget and now there is another set of rules again! Is there someone called Rafferty that Turnbull and Morrison are disciples of?

If you are currently 63 or 64 you are now worse off with this change.

With the first proposed change you could put in $500k, now you can only put in $300k if you are 64 or $400k if you are 63.

Please bring back the proposed change to allow contributions up to age 74, it was such a sensible idea.

Many retirees only have lump sums of this size when they receive an inheritance or downsize their home. Both of these events are more likely for people in their early seventies than in their early sixties.

From 1 July 17 you will need to be 65 yrs 6 mths to get a pension, and this will increase gradually to 67. The age for allowing contributions should at least be raised in line with this.

"Many retirees only have lump sums of this size when they receive an inheritance or downsize their home."

And it's for reasons just like these that the rules were targeted in the first place.

Why on earth should any tax payer (or non vote whoring politician) care less about someones ability to get a tax free inheritance or tax free profit on the sale of real estate into an environment that ensures they have limited or zero ongoing tax liabilities indefinitely?

This is 99% tax minimisation and 1% retirement planning, a strategy that the overwhelming majority of tax payers today and basically every future tax payer will never have access too!

The mere fact that people actually consider this to be a reasonable point of conjecture in a national tax debate is a prefect reflection of how self deluded we are as a nation.

What this does is to remove an internal inconsistency in the Budget policy, but not change the thrust of the changes announced in May. The lifetime cap meant that someone who had, say, $1 million in super but had already put $400k non-concessional towards that now had only the capacity to build it up to $1.1 mn. The change today means that the $1.6 mn is actually attainable for those fortunate enough to be able to get there, but the annual cap still means you have to accumulate that over a period of years.

I'm OK with these changes.

Given these new rules for $100,000pa subject to a $1.6m cap dont come into effect till 1 July 2017, do you think we are now permitted to put in $180,000 this year even if the super balance is in excess of $1.6m?

If one of the professionals from Cuffelinks could find out for us if we can still contribute $180k for this financial year it would be much appreciated.

It would help those of us who are 63 or 64 and who would therefore not be able to get more than $300 or $400k in before reaching 65.

It is hard to plan when you are approaching 65 and the rules are constantly changing.

Scrapping the change allowing everyone to contribute until they are 75 is so disappointing.

I have found a fact sheet available on the treasury website and it seems you can contribute $180k this year as in the past, and it also looks like you can still contribute $540k using the bring forward provisions.

This is my interpretation (I am not a financial planner)

If you are 64, you can put in $540k this year

If you are 63 you can put in $540k this year OR you can put in $180k this year and $300k next year (the first gives you the most)

If you are 62 you can put in $540k this year OR you can put in $180k this year, $100k next year and $300k the following year. (the second option gives you the most)

> find out for us if we can still contribute $180k for this financial year it would be much appreciated.

or even $540k using the current three year bring forward rule? (Assuming you had that amount sitting around in your petty cash drawer). Might be a once in a lifetime opportunity if allowed.

Back dating NCC to 2007 was arguably retrospective and this was apparently central to the modification of the proposals.

At least there is some chance that meaningful superannuation balances will be reached by retirees and pressures on the age pension lessened as a consequence - a breath of common sense!.

What is clearly retrospective is the imposition of a $1.6M cap on retirement phase accounts when those existing pension phase accounts already exceed $1.6M - I look forward to politicians from both sides addressing that issue even if only to see their distorted logic at play again.

Have I understood this correctly, as from 3/5/16 (Budget night) for those with a super balance less than $1.6m will be limited to $100k pa for after tax contributions but may avail themselves of the 'bring forward rule' now set at $300k ?

But as Crikey also says: The government’s backdown is undoubtedly a win for the very rich, who have been exploiting Australia’s retirement incomes system for tax avoidance and estate planning purposes for many years. They will still have the capacity to enjoy concessional tax treatment that they would not have enjoyed under the original Budget proposal.

The reason they want to retain the work test for 65 - 74 escapes me. It makes no sense whatsoever. It is so easily circumvented anyway.

Andyb, can you tell me how? Seriously. I have just turned 65 and would like to make a non concessional contribution this financial year to my SMSF.

Why not just let people get to the $1.6 million when they can? What is the point of having an annual cap on NCC when there is a cap on the total amount allowed in super anyway?
If someone has a large inheritance, the Govt should encourage/reward them for saving it by putting it all into Super. None of these rules make any sense. I am glad that the lifetime cap is NOW going to be removed, but all the other stupid proposals regarding Superannuation limits of Morrison and Turnbull need to be seriously reconsidered as well.

Totally agree. We are told how the increasing number of elderly people will put more and more pressure on the age pension system and yet a fair scheme for encouraging people to put a reasonable amount away continues to be messed about every few years. It's enough to make people decide to put their money elsewhere - or spend their surplus and then rely on the age pension - especially when it's implied that people who have put $1.6 million away are really rich and have had an unfair advantage. The real rorts of the system are by the really rich - $1.6 would be peanuts to them. Unfortunately most people have no idea how much has to be invested in order to pay the aged pension. Why are the politicians not explaining this better to people? And why take away the opportunity for those aged 65-74 to top up their accounts if they have not reached the $1.6 million limit? The system is still a mess and it need not be. People need to be educated that if they want a more comfortable retirement they need to save rather than spend and expect the state to provide for them as they have paid their taxes all their lives. Instead there is encouragement to arrange their affairs in such a way that they still get a part pension with the perks that go with this.

Still no change to the ridiculous 75 yr age limit for contributions yet they are encouraging older workers to stay in the workforce and a lot of older farmers have no choice!

This was always the logical thing that should have been done in the budget. Looks, smells and sounds like the RBL is back!

Good to see someone saw sense in the end.

Well Graham, my comment on your earlier article has proved correct. The only time to doubt the veracity of what a politician says is when his or her lips move.

Yes, Mark, you were correct. When the Treasurer looked me in the eye and said: "The changes that we put forward, which I hope at least from my point of view as Treasurer I never have to revisit, and I certainly have no intention of revisiting them, will ensure that those rules are now set for the future."

I thought the way he emphasised: "I certainly have no intention of revisiting them" might have carried the day, but the politics was too much for him. Indeed, how do we know what to believe when we're told something?

Graham - Having worked at the CBA for many years I thought you would have understood the value of a politicians promise