You may be aware that a number of changes to superannuation laws come into effect on 1 July 2021. While the new financial year is still a few months away, it’s important to understand what these changes will bring and how they, in alignment with the current super laws, could present different financial opportunities or challenges that need to be addressed.
While the implications will look different depending on your individual circumstances, planning is needed now, so you have time to prepare and implement your strategy before 30 June. In this article, we provide an overview of the key changes and the potential scenarios that may affect your superannuation and retirement lifestyle.
Our goal is to help you plan for what really matters and that includes enjoying the retirement lifestyle of your choice.
Understanding how to maximise opportunities for boosting your super savings is important, and while we outline the key points here, applying the super laws both current and future, will be specific to your particular circumstances and goals.
Super contributions caps increase from July 1, 2021
Super contributions caps apply to both concessional contributions (pre-tax) and non-concessional contributions (after-tax).
From 1 July, the concessional (pre-tax) contributions cap increased from $25,000 to $27,500 per year, while the non-concessional (after-tax) contribution cap increased from $100,000 to $110,000 per year. It’s important to know, the increase in the non-concessional contribution cap may not apply to you if you have used all or some of your transfer Balance Cap (see below).
Super guarantee increases to 10%
From 1 July, compulsory Super Guarantee payments paid by employers are scheduled to increase from 9.5% to 10% of your wages or salary. It is further scheduled to increase by half a percent each year until it reaches 12% in 2025. This increase to 10% on 1 July, is yet to be officially confirmed by the Federal Government, with indications a decision will be made in the May 2021 Federal Government Budget announcements.
Increase in the amount of funds that can be transferred into tax-free pension phase
The Transfer Balance Cap, which is the amount you are able to transfer into your ‘Retirement Phase’ or tax-free phase of your super is increasing from $1.6 million to $1.7 million on 1 July 2021. This increase provides a further opportunity for pre-retirees to boost their retirement savings in a tax effective environment. The increase in this cap may not apply to some retirees who have already transferred funds into the tax-free pension phase that are close to or above the original cap.
So, what are the existing and new super opportunities you should consider?
Salary Sacrifice: Salary sacrificing to increase your concessional contributions to take advantage of the higher cap, provides two opportunities. The first is an opportunity to boost your annual super savings by up to a further $2,500. The second, is for that amount to be taxed by your super fund at the lesser amount of 15%* rather than the usual marginal tax rates. It’s important to know the $27,500 annual cap is inclusive of employer Super Guarantee payments (as above may increase after 1 July 2021), salary sacrifice amounts you may make and any insurance premiums paid separately for superannuation owned insurance only policies. Exceeding the cap can result in penalties which may include paying additional tax.
Surplus Cash: With the non-concessional cap increasing from $100,000 to $110,000 per year, contributing surplus cash, which may include funds from the sale of a property or money received as part of an inheritance, provides further opportunity for you to boost your retirement savings.
Bring-Forward Rule: In accordance with the increase to non-concessional contributions, those under age 65 at the start of the financial year may utilise the bring forward rule which enables you to bring forward three years of non-concessional contributions in one financial year from 1 July at the increased amount of $330,000 (up from $300,000).
However, it’s important to note there are strict criteria as well as a number of considerations depending directly on your personal circumstances to be taken into account. These include your age, your total super balance and if you have previously triggered the bring forward rule. Further, for those who are between 65 and 67 years at 1 July, legislation has not yet been passed regarding whether these rules have been extended to you. As you can see, there are complexities which are quite specific to your individual circumstances, and we encourage you to contact us for advice before deciding the way forward with your super.
Less Tax: With the increase in Transfer Balance Cap to $1.7 million from 1 July, and if your total super balance is less than that amount on 30 June 2021, this may provide opportunity for making non-concessional contributions of up to $110,000 in the 2021/22 financial year to take advantage of what is an even more tax effective environment than was previously available.
As you’ve read here to determine the appropriate strategy under the new and existing superannuation rules there are a number of considerations which need to be based on your personal and financial circumstances, goals and objectives.
Further, depending on your age and working circumstances there may be advantages in either making additional contributions before the end of June (so an opportunity is not lost due to an age cut-off) or delaying until after 30 June to take advantage of higher contribution thresholds.
The close nature of our relationships and the conversations we initiate during regular progress meetings, enable us to proactively apply or adjust financial strategies including those relating to super, to make the most of changes that happen in our clients’ lives.
As indicated here, changes which can seem inconsequential such as stepping back from full time to part time work or having a birthday, can provide significant financial opportunities. It is knowing these more personal details about your circumstance, goals and aspirations that allow us as your financial planners to add considerable value and assist in achieving your goals and financial outcomes.
To find out more about how you can make the most of the available strategies for building your superannuation and planning for retirement, please give us a call and together, we’ll make it happen!
Stratus Financial Group helps professionals, executives, business owners, families and retirees manage their complex financial affairs and coordinate their professional advisers.
Stratus Financial Group and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306. This is general advice only and does not take into account your objectives, financial situation or needs, so you should consider whether the advice is relevant to your personal circumstances. You should also read the relevant Product Disclosure Statements (PDS) before making any financial decisions.