Concessional Contributions Cap Changes

Andrew Jewell, First Super’s Financial Advice & Education Manager explains the changes to the Concessional Contributions Cap and what it means to your Super.

Recently, some members have been asking me what impact the reduction in the Concessional Contribution cap will have on their salary sacrifice contributions.

There is a wider implication especially where the member has implemented a Transition to Retirement (TTR) strategy, as reducing salary sacrifice contributions will have two major outcomes:

• An increase of net income; and
• Whether the regular income from the Allocated Pension is still required to supplement income.

A Concessional Contribution is typically made up of Superannuation Guarantee Contributions and Salary Sacrifice Contributions. The current Concessional Contribution cap is $35,000 for someone aged 49 or over at 30 June 2016 or $30,000 for anyone else. A member may have implemented a TTR strategy to supplement their income so that they could make additional salary sacrifice contributions to boost their super.

From 1 July 2017 the Concessional Contribution Cap is reduced to $25,000 regardless of your age. The change means that where someone was making contributions up to the previous applicable cap, then they will need to reduce salary sacrifice contributions between $5,000 to $10,000 accordingly. This in turn will increase their net income which raises the question as to whether they still need to supplement their income to the same level under a TTR strategy.

The answer for some members has been that the increase in net income is sufficient to meet their living expenses and consequently decided to ‘cease’ the TTR strategy by arranging to roll back the funds from their Allocated Pension to their Super account (Accumulation). They have maintained the salary sacrifice contribution arrangement but requested their employer payroll department to lower deductions to stay within the ‘new’ cap.

Other members still need to supplement their income but not to the same level. In these instances arrangements have been made to either reduce the regular income drawn from their Allocated Pension, or start a new Allocated Pension account using the same funds where the minimum 4% of the account balance is being drawn.

In addition to changes on how much can be contributed, where a TTR strategy exists, the earnings on the Allocated Pension from 1 July 2017 will now be taxed at 15% which is same for the Super account (Accumulation). This raises the question for some members, especially where they are below the age of 60, whether the TTR strategy still provides the associated tax advantages.

If you are unsure or need advice on how to manage your TTR strategy, the First Super Financial Advice team are here to help you. Please call First Super’s Member Services Team on 1300 360 988 to make an appointment.

Disclaimer:

The content in this newsletter is accurate and reliable as at June 2017. This information is of general nature only and does not take into account your personal circumstances or situation. We recommend that you seek qualified financial advice before making any investment decision. This newsletter is provided by First Super Pty Ltd ABN 42 053 498 472, AFSL No. 223988, as the Trustee of First Super ABN 56 286 625 181. If you intent to invest or hold this product, you should obtain and consider a copy of the Product Disclosure Statement which is available by calling 1300 360 988.