A Critical Time For Specialist Advice
There are times in our lives when the need for gaining specialist professional advice may seem particularly critical. And for many super fund members, this is one of those times.
Numerous members of large APRA-regulated super funds and SMSFs will seek advice specifically about how to deal with the tranche of superannuation reforms that has just passed into law.
These changes – most taking effect from July 2017 – are the biggest in a decade.
Members seeking guidance about the new super laws will include those who are determined to maximise their contributions (whether years from retirement or within sight of retirement), those who are transitioning into retirement, and retirees (particularly if their pension balances are already substantial).
In short, this legislation affects members right across the age spectrum and with a wide range of super balances.
Depending upon the circumstances, advice sought may cover particular issues for SMSF members, possible estate-planning implications, any tax concerns and transitional arrangements.
Key changes from next July include the lowering of the concessional (before-tax) and non-concessional (after-tax) contribution caps and the placing of an indexed $1.6 million cap on the amount that can be transferred into a tax-free super pension account. And members with total super balances of more than $1.6 million will no longer be eligible to make non-concessional contributions from July 1, 2017.
Further, the earnings of assets backing transition-to-retirement pensions will be taxed from next July. These earnings, which are currently exempt from tax, will be taxed at the same rate (of up to 15 per cent) as earnings in super accumulation accounts.
While life will go on as normal for many super fund members, many others will want to adjust their superannuation strategies in both the accumulation and pension phases.
Given the lowering contribution caps and the introduction of the cap on super pension accounts, more couples in marital relations are likely to seek advice about how to co-ordinate their super saving strategies to achieve the best combined result.
Members with pension balances above $1.6 million at July 1, 2017 will have to transfer the excess back to a super accumulation account or out of the super system. Many members in this position are likely to gain advice about the most effective way to hold amounts above $1.6 million given their particularly circumstances.
Overall, superannuation advice will broadly be divided into what fund members should do under the current regime in place for the remainder of 2016-17 and what they should do from next July.
Given the lowering of the annual contribution caps from next July, many fund members are likely to try to maximise their contributions for the remainder of this financial year. Again, much will depend on circumstances, including advice received.
Robin Bowerman is Head of Market Strategy and Communication, Vanguard Australia. As a renowned market commentator and editor Robin has spent more than two decades writing about all things investment.