The evolution of the superannuation and social security systems continues to take twists and turns that can throw up challenges for your retirement planning, but can also present opportunities to boost your retirement savings position.
Some recent changes, in particular, are worth noting, while some existing opportunities may also be well worth revisiting, so that you can take full advantage of the tax savings available. Topping up your super may well be a worthwhile option for you.
Changes to the Superannuation Guarantee regime
Last year, the Superannuation Guarantee rate increased to 9.5%, which is a welcome addition toward the retirement nest egg of many employees. The government, however, has decided to slow the further progress of SG contributions and the next projected increase in the rate has been postponed until 2021.
What does this mean for your situation if you are an employee?
SG contributions form an important basis for retirement savings, but it is unlikely that they will be enough on their own to fund the kind of retirement lifestyle that you desire. The delay in SG increases makes it even more vital to re-think how much you are contributing voluntarily so that you are not caught short at retirement.
Change to age pension qualification age
Future age pension eligibility has also been tightened up and may require a revision of your planning – especially if you have a desire to retire early.
The previous government’s intention was for age pension eligibility to be lifted to age 67 by 2023, but recent announcements indicate that the eligibility age will now be lifted to 70 by the year 2035.
Those born prior to July 1952 will dodge this bullet, but once this proposal becomes legislation, 70 will become the new age pension age for anyone born after 1965.
Can you benefit from a lift in contribution caps?
Those who are seeking to top up their super may benefit from an upward change recently made to the concessional limits for before-tax contributions for the 2014/15 financial year. You can now make a concessional contribution of:
- up to $30,000 a year if you are under 50, or
- $35,000 if you turn 50 during this tax year or if you are older.
The change applies to a range of contribution types, including super guarantee contributions, contributions made via salary sacrifice and other contributions on which you are eligible to claim a tax deduction or reduce your taxable income.
Don’t forget existing incentives?
Of course there are a range of other incentives that can boost your retirement nest egg with help from the government. These longstanding inducements are there for the taking, so it is important to check what you may be eligible for. For those earning less than $49,488 a year, the government will chip in an extra tax free super contribution of up to $500 as an incentive for you to make your own after-tax contribution to your super.
Another incentive is available to those who have a non-working or low-income spouse. By simply making a contribution on their behalf, you may qualify for an 18% tax offset on contributions of up to $3,000. That’s a potential tax benefit of up to $540. Even if they earn up to $13,800 they may still qualify for some level of support from this tax offset.
Of course there are the usual tax concessions open to those who make voluntary contributions. For the self-employed, they can take advantage of deductibility on personal contributions, while employees can gain a tax benefit from making salary sacrifice contributions by arrangement with their employers.
Talk to your adviser if you have concern over whether your retirement savings are sufficient to fund your retirement lifestyle, or if you want to top up your super to maximise the benefit of the incentives that may be available to you.