In the Barwon Financial Planning October update we take an in-depth look at the first of 4 new measures available since 1 July allowing clients to boost their superannuation balances.

New retirement and superannuation strategies for 2019/20

Accessing a higher concessional contributions cap.

Back in August, we briefly discussed changes to the concessional framework. This article aims to provide a deeper understanding of the changes as well as an example to consider.

From 1 July 2019 individuals can now make contributions above the current cap (currently $25,000 p.a.) by utilising their unused concessional contributions cap amounts from a prior year.

Unused concessional contributions cap amounts commenced accruing from the 2018/19 financial year, making the 2019/20 financial year the first year individuals could start accessing these amounts.

To access carried forward unused amounts in a financial year, an individual will need to have a total super balance of less than $500,000 on 30 June of the prior financial year.

Unused amounts in one year can only be carried forward for up to five years. After five years they will expire if not used.

Advice considerations

There are many strategies that we can now utilise by being able to access a higher concessional contributions cap including:

• Increase the amount of concessional contributions that can be split to a spouse. This can help maximise the effectiveness of sheltering strategies for social security purposes when splitting to a younger spouse. It can also help with equalisation strategies or strategies to access super earlier when splitting to an older spouse;

• The ability to make a larger one-off personal deductible contribution to help offset assessable income, such as capital gains from the sale of assets; and

• Maximising the tax efficiency of transition to retirement (TTR) strategies by making higher before tax contributions using salary sacrifice or personal deductible contributions.

Example

Dennis is 60 years of age and earns an estimated taxable income of $80,000 p.a. We’ll assume in this example that Dennis will continue to work (earning the same income) for the next five years and has $200,000 in superannuation. Dennis did not make any of his own contributions into superannuation last financial year, relying solely on his employer ‘superannuation guarantee’ (SG – 9.5% / $7,600). Dennis is seeking advice to maximise his retirement savings going forward with the objective of retiring at age 65.

After receiving advice, Dennis implements a TTR strategy. The only concessional contributions in the previous 2018/19 financial year were SG contributions of $7,600 and he has a total super balance of less than $500,000 on 30 June 2019. Taking into consideration Dennis’ employer SG for the 2019/2020 financial year, again $7,600, Dennis is able to contribute up to $34,800 as a concessional contribution under the TTR strategy in 2019/20, in contrast to the previous maximum $25,000 per annum.

Alternatively, Dennis could make concessional contribution of $21,750 each year (in addition to his employer SG) for the remaining four financial years prior to retirement (ignoring any indexation of the general concessional contributions cap) subject to his total super balance remaining below $500,000 on 30 June of each financial year.

If you think you or someone that you know may benefit from this strategy or if you have any further questions, please let the team know.

As always, thank you for your continued trust and confidence.