The end of November saw a large number of the changes to the superannuation rules passed into law that were first announced on budget night and subsequently amended.
In some ways we should be thankful for this, as it gives us some certainty on the new parameters of the system we have to work within. But the passing of the bills in both houses has been a figurative starter’s gun for implementing SMSF strategies to make the most of the existing rules before the new set comes into play.
For example, many SMSF trustees will seek to maximise their concessional contributions while the yearly cap remains at $30,000 for people 48 years old or under and $35,000 for people 49 years old or over, while others will aim to take advantage of the existing non-concession contributions cap of $180,000 before it drops to $100,000 a year.
On the surface these changes look fairly straightforward, but none of us should be lured into thinking they are. For example, transitioning to the new levels already has an added layer of complexity: if a reserving strategy for concessional contributions is employed to maximise the tax deduction allowable in the current financial year, the 2017 contributions allocated to the reserve will have to comply with the new cap of $25,000 a year.
Similarly, bringing forward future non-concessional contributions will involve a combination of the existing $180,000 yearly cap and the future $100,000 cap.
While we’re on the subject of the bring forward rule for non-concessional contributions, this will no longer be a straightforward exercise of fast-tracking total contributions of $300,000 over three years, as it appears on the surface.
Instead, SMSF trustees can anticipate having to assess the amount of non-concessional contributions they can make on a yearly basis, as the law now dictates that if you have super balance of $1.6 million or more, you are prohibited from making any more of these types of payment.
What it boils down to is more record-keeping to accurately monitor factors like the $1.6 million threshold and the $500,000 limit preventing the roll-forward of unused concessional contributions into future periods.
Of course, that means including any super balances in funds other than SMSFs that have been kept active, perhaps for risk cover purposes.
I began covering this sector not long after reasonable benefit limits had been scrapped, and all practitioners I’ve spoken to along the way acknowledge this was a good thing. However, they are now all telling me we are returning to a similarly complicated structure.
And if there are any sceptics about the complexity that has just been added to the retirement savings system, they don’t have to believe me – they can draw the evidence from some of the technical experts in the field.
I recently attended a presentation on the subject from a respected industry practitioner who said he had complained to Treasury about how difficult it was first to get his head around the changes and then try to explain how they work to other advisers. For him to make that observation is really something of which to take note. What is more worrying was the response he got: they don’t care.
It doesn’t paint a very encouraging picture for future developments if this contemptuous attitude is what we now face.