Last night the Federal Treasurer, The Hon Scott Morrison MP, handed down his first Federal Budget. Below is a summary of the proposed changes affecting your clients’ superannuation and pension benefits. Please note that this Budget requires passage of legislation through Parliament before becoming effective.

Key Superannuation & Pension Measures

Contribution Phase

Work Test

• Removed from 1 July 2017. Members under 75 years of age can now contribute to super without any restrictions to employment.

Non-concessional contributions

• There is now a $500,000 lifetime cap (indexed to average weekly ordinary time earnings, or AWOTE) from 3 May 2016. This cap is backdated to 1 July 2007. Members who have already exceeded this cap before 3 May 2016 will not be penalised. However, excess non-concessional contributions after 3 May 2016 will need to be removed or are subject to penalty tax (highest marginal tax rate).

Concessional contributions

• The cap for this has been reduced to $25,000 from 1 July 2017 and aged based caps are removed.
• Personal super contribution deductions permitted from 1 July 2017 without restriction up to age 75.
• Catch-up contributions permitted for ‘unused cap amounts’ accruing from 1 July 2017 if balance is less than $500,000 (calculated on a five-year rolling basis).
• Income threshold for extra 15% superannuation contributions tax reduced from $300,000 to $250,000 from 1 July 2017.
• Current Low Income Superannuation Contributions to be replaced by Low Income Superannuation Tax Offset (LISTO).
• Threshold is raised for low income spouse super tax offset from $10,800 to $37,000 from 1 July 2017. Maximum threshold of $540 continues to apply.

Retirement Phase

Transition to Retirement Pensions

• Earnings are no longer tax-free from 1 July 2017.
• Election to treat withdrawals as tax-free lump sums are no longer available.

Pension income streams

• $1.6 million transfer balance cap for ‘retirement pensions’ from 1 July 2017 (indexed in $100,000 CPI-based increments). Tax-free earnings will only apply to the first $1.6 million capital plus growth. Balance above this amount will be taxed at 15% with 10% CGT.
• Existing retirement pensions must reduce their retirement account balance to $1.6 million by 1 July 2017.

Recontribution strategy

• $500,000 lifetime non-concessional cap restricts contributions.

Estate Phase

Anti-detriment payment

• This is to be removed from 1 July 2017, reducing death benefit payouts to survivors.

Pension income streams
Balances above $1.6 million will not lock in tax-free component as a percentage.