Contributions, financial advice

Inflation piquing adviser interest

inflation contributions advisers

The inflationary effect on the superannuation rules and downsizer contributions dominated adviser queries in the final quarter of last year.

The impact of inflation on superannuation legislation and the recent change to the qualifying age for downsizer contributions have ranked as two of the top five issues about which the BT technical services team has fielded inquiries from advisers in the final calendar quarter of 2022.

More specifically, advisers have been looking to prepare for the effect the high levels of inflation being experienced in the Australian economy will have on the general transfer balance cap, currently set at $1.7 million.

The current levels of inflation have a high probability to trigger two rounds of indexation, to the value of $100,000 each, applied to the transfer balance cap, raising this threshold to $1.9 million.

BT technical consultant Tim Howard suggested advisers acknowledge the strategy implications this development will have for SMSF members.

“If you have clients who are planning to start a retirement income stream before 30 June 2023, it is worth considering if this would lead to the best outcome for them. [You should consider] would they be better off delaying the commencement of the income stream until after 1 July 2023 so they can gain the maximum indexation benefit,” Howard said.

With regard to contribution strategies, advisers expressed interested in gleaning more information about the downsizer provisions due to legislation affecting these rules being passed late last year.

The Treasury Laws Amendment (2022 Measures No 2) Act 2022 reduced the age from which individuals can qualify to make a $300,000 downsizer contribution upon the sale of their primary dwelling from 60 to 55, effective 1 January 2023.

According to Howard, practitioners should take into account all of the consequences making a downsizer contribution may trigger.

“Downsizing can ease cost-of-living pressures for many Australians: not only does it free up money, the maintenance costs for a smaller home are also usually lower. In addition, the ability to make up to $300,000 in downsizer contributions to super tax-free can boost retirement savings significantly,” he noted.

“However, as part of retirement planning, clients who are receiving an age pension, or expecting to down the track, should be made aware of how age pension means testing may be impacted.”

Another retirement-related inquiry made by advisers included asking about the extension of the ‘work bonus’ allowing individuals to earn up to $11,800 without affecting their eligibility to claim the age pension until December 2023.

The increase in income thresholds relating to the receipt of the Commonwealth Seniors Health Card from $61,284 to $90,000 for individuals and $98,054 to $144,000 for couples effective from 4 November 2022 also raised advisers’ interest.

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