Superannuation is a way of putting aside savings to provide an income in retirement.
For the majority of Australians, employers will make a compulsory payment of 9.5% of their salary into their super fund. This is called the Superannuation Guarantee (SG).
Self-employed people are generally not covered by the SG and aren’t bound by law to make super payments for themselves, so for many reasons they usually end up putting their own super last on the list.
However, super can make a big difference to your lifestyle in retirement and managing it well and starting it sooner rather than later, might mean the difference between having the retirement of your dreams or just scraping by. It can also provide a tax deduction as well!
There has been a lot of political to and froing in recent years about whether changes are needed to the super rules and limits and whether perhaps it is too generous to some and not of much use to others.
There is also a valid argument that working hard and self-funding your retirement means you will not be a burden on the government in retirement, so surely more super should be encouraged and rewarded.
Now the government has now finally provided some clearer direction. One of the big frustrations I hear most about super is people not knowing or fearing that the government will move to goal posts or change the rules to negatively impact super and that’s fair enough after all it is your hard earned $$ you are locking away for retirement, so to clarify a few of the changes that will impact the future the government has legislated that firstly the key elements of the superannuation system remain the same for the 2016/2017 financial year, other important points include:
• Superannuation guarantee rate stays at 9.5%
• No increase in tax on super fund investment earnings
• Concessional contributions (tax deductible) caps will be reduced from July
• Non-concessional contributions caps (non-tax deductible) will be reduced from July
• Super benefits for over-60s remain tax-free
• Tax exemption on investment earnings for transition-to-retirement pensions (TRIPs) remains until June 30 (removed from July 1)
• Low Income and co-contribution super contributions will remain
• Tax treatment of death benefits remains the same (apart from removal of anti-detriment payment from July)
As mentioned, the government will not impose any additional tax on super pension investment earnings for the 2016/2017 year, although from July 1 the government has imposed a cap on the value of assets that you may take into pension phase, and that transfer balance cap is $1.6 million.
Note if you expect to have more than $1.6 million of super in pension phase as at July 1, you will need to take action before July.