Written by Robin Bowerman, Head of Corporate Affairs at Vanguard/Board Director of the SMSF Association
Checking your super fund’s cash flow of contributions in and pension payments out is a particularly critical part of end-of-financial-year planning for 2017-18. Don’t leave it until the last minute.
Super money in
Well before June 30, make sure you have contributed as much as you want within the annual contribution caps. Perhaps treat the approaching financial year end as a prompt to contribute more.
Unfortunately, many of us wait until a financial year is almost over before topping up our super with extra contributions. This last-minute rush can lead to such mistakes as overshooting the contribution caps or not contributing up to our caps if that’s the intention.
The lowering of contribution caps, and a possible impact on contributions linked to the introduction of the $1.6 million pension transfer cap, mean it is now essential to give even more attention to your annual contributions.
From 2017-18, the concessional (before-tax) contributions cap for all eligible contributors is lowered to $25,000. The lowering of the cap will lead to some members inadvertently exceeding it.
Concessional contributions are made up of salary-sacrificed, superannuation guarantee (SG) and personally-deductible contributions if eligible. Many self-employed people and investors claim tax deductions for their personal contributions within the concessional contribution cap. (And from this financial year, eligible employees can claim tax deductions for personal contributions within the cap).
Another change from 2017-18, is the lowering of the standard annual cap on non-concessional (after-tax) contributions from $180,000 to $100,000.
In turn, the lowering of the concessional cap reduces the amount that members under 65 can bring forward to make up to three years of contributions in a single financial year. You may be thinking about contributing, say, an inheritance or proceeds from the sale of a non-super investment.
Now a reminder for members with total super balances (in accumulation and pension accounts) of $1.6 million or more at June 30 for the previous financial year. These members are no longer eligible to make non-concessional contributions.
Super money out
If you are receiving an account-based pension, make sure before the end of the financial year that you have taken the minimum annual pension payment required or risk losing the tax exemption on earnings of assets backing your pension.
Although the minimum applies to all account-based pensions, it is an issue that SMSF trustees in particular should watch.
The aged-based minimum pension payment is a percentage of the balance of your pension account at July 1 each financial year or from the date a new pension begins.
This minimum percentage progressively rises from 4 per cent for members aged under 64 to a high of 14 per cent for members aged 95 or over. For example, the minimum is 5 per cent for ages 65 to 74 years and 6 per cent for ages 75 to 79.
For much of our working lives, our superannuation focus is largely on accumulating savings; the other side of super is eventually taking the money out. It is an issue to watch as the end of the financial year draws nearer and as the population ages.
Keep in mind that the latest Superannuation market projections report, published annually by actuaries Rice Warner, calculates that SMSFs hold almost 60 per cent of the total superannuation retirement dollars.
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