Big Changes to Superannuation: Are you affected?
There are a large number of changes to superannuation that started on 1 July 2017. These flow from the 2016 Federal Budget and it is important for you to check if you are affected by these changes.
The Australian Tax Office has prepared an information package on the changes. See Super changes on the ATO website. Be aware that significant details specific to your individual circumstances may not be included in this information. If you are not clear about your situation please seek advice from a financial advisor, accountant, your superannuation fund or by making an appointment with an officer from Centrelink’s Financial Information Service (either in person at your local customer service centre or on the phone 132 300).
There is a video on ATO TV about how to prepare for the 1 July super changes in three easy steps that you may want to watch.
The following is the section relevant to retirees or those approaching retirement from Money Smart’s information about the Superannuation changes from 1 July 2017.
- Low income earners (people earning less than $40,000)
- High income earners (people earning more than $250,000)
- People who want to make extra super contributions
- Retirees or those approaching retirement (see below)
The rules around retirement income streams are changing. Transition to retirement (TTR) pensions will become less tax effective and there will be a cap on how much you can transfer into a tax-free super pension. There are also new restrictions on the way death benefit payouts are calculated.
Transition to retirement (TTR) pensions
Under the current rules, earnings on transition-to-retirement (TTR) pensions are not taxed. From 1 July 2017, the earnings of a TTR pension will be taxed up to 15%, the same as they are in a super accumulation account.
For example, if you had a TTR pension of $200,000 and the investment earnings were $10,000 for the year, there is currently no tax on those earnings. From 1 July these earnings are taxed at up to 15%, or up to $1,500 in this example, depending on the type of underlying investments.
The earnings of ordinary retirement pensions will still be tax free.
Super transfer balance cap
If you are aged 60 or older, income payments from an account-based super pension are tax free. From 1 July, there is a limit on how much super you can transfer to a tax-free account-based pension. This is called the ‘transfer balance cap’ and it will initially be set at $1.6 million but will be indexed by Consumer Price Index – CPI, rounded down to the nearest $100,000.
Only the unused portion of your cap will be indexed. Once you have reached the transfer balance cap you won’t be entitled to further indexation. You can have multiple transfers to pension accounts as long as the total amount transferred into an account-based pension is under the cap. Investment earnings will not affect your transfer balance cap.
TTR pensions will not count towards your transfer balance cap and there is no limit on how much you can have in your accumulation super account.
Account-based pensions started before 1 July 2017 will be counted towards the transfer balance cap on 1 July 2017. Pensions started after this date will count towards the cap when they commence.
If you exceed your transfer balance cap, you may have to remove the excess funds and pay tax on the earnings related to the excess.
Defined benefit pensions
Different tax rules will apply to defined benefit pensions as you usually can’t transfer or remove excess amounts from these income streams. Speak to your defined benefit pension fund to see how the changes will affect you.
Super anti-detriment payment
An anti-detriment payment is a payment to the dependent beneficiaries of a deceased super fund member that represents a refund of super contributions tax. A dependent beneficiary of a deceased estate can request an anti-detriment payment be paid as part of a super death benefit payout.
From 1 July 2017, this payment is no longer available as part of a super death benefit payment. Super funds can still make anti-detriment payments until 30 June 2019 for members who died before 1 July 2017.
The July 2017 super changes are designed to make the system fairer and sustainable. It is now more important than ever to start planning your retirement income early. Visit the ATO’s super changes webpage for more detailed information and examples of how you might be affected.
For more information visit Money Smart website.