Dare I say it: advisers and clients face an unprecedented time of certainty. There you go, I am saying it. We face a period with certainty about how the superannuation rules are going to work, and we have seven months to prepare ourselves and our clients for that future.
Federal parliament passed the legislation in late November to give effect to the measures originally announced in the 3 May 2016 budget and then adjusted in further September announcements. So, we can now understand what the future holds and carry it out with a level of certainty and conviction. And we can do this because none of these final measures is retrospective in application.
The changes create myriad planning opportunities for advisers to discuss with clients and, based on seminars I have recently been involved in, clients are waiting to hear about them. While changes have been made through this legislation, it’s important to break down these changes to those that require action now or only after 1 July 2017.
As a starting point, advisers should focus clients’ attention on those matters that have an impact this financial year. Take the new rules around non-concessional contributions as an example – these don’t apply until 1 July 2017. So while clients should be made aware of the changes, there isn’t much for them to do right now, as the biggest impact will be what their super balance is at 30 June 2017.
But what clients can do right now is focus on how much can be contributed this year. The rules for this year haven’t changed. The eligibility rules aren’t different – for example, you can contribute if you are under 65 and you can contribute if you meet a work test if you are aged between 65 and 74. Those rules stay the same from 1 July 2017 as well.
But the difference is in how much a client can contribute. If a client is able to trigger the bring-forward rule this year, they can contribute up to $540,000 as a non-concessional contribution this financial year.
If they can trigger it and can afford to contribute, they should be looking to maximise this cap contribution as far as possible. If they don’t, and they are subject to reassessment of the three-year total on 1 July 2017 (down to a possible limit of $380,000 for the three years), then they may miss out on up to $160,000 of future super savings.
If your client is one of a couple, and has the ability to access their partner’s super, there may be opportunities to look at reducing their own super balance (if in excess of the future $1.6 million cap) and contribute it to a spouse’s account if their partner’s balance is lower.
This may allow both to continue to make more contributions from 1 July 2017, or reduce the impact of the pension transfer balance cap.
SMSF trustees who have previously borrowed towards the purchase of an asset may need advice on the viability of those geared arrangements, particularly if members are prohibited (because of their balances) from making additional non-concessional contributions from 1 July 2017.
In relation to the pension phase, it will be important to understand if clients are already in excess of the $1.6 million pension transfer balance cap. If they are, they will need guidance on what action to take and when.
Under the legislation, there is the possibility for cost bases of assets to be reset where action is taken by 30 June 2017 in preparation for the imposition of this cap. In the SMSF environment, the timing of this will be vitally important as there may be advantages to a date other than 30 June.
A time of certainty is probably a unique outcome in the area of super advice, but we have it. Whether or not you agree with the changes, we should be grateful that both sides of parliament worked to ensure the passage of this legislation gave members time to act and super funds time to prepare.
Of course, there is no guarantee that the super rules won’t change again, but it feels like we may enjoy a couple of years without substantive alteration. If you still think that super is uncertain, perhaps it’s important to go back to the fundamentals.
The purpose of super is about providing a mechanism for people to save towards their own retirement. Super always has been – and I suspect always will be – a concessionally taxed environment to encourage that behaviour.
There is nothing on the horizon that can take away from the certainty that when planned for within the existing rules of the day, a well-planned approach to super can help Australians towards a more comfortable retirement.
