The super contribution rules and limits are set to change from 1 July 2017 on the back of the government’s May 2016 Federal Budget proposals and several subsequent modifications to its plans around super reform.
While your employees may not be able to put as much money into super as a result of these changes, the good news is there are still opportunities they could take advantage of before the financial year ends.
What’s changing and what are the opportunities?
Before-tax super contributions
The before-tax (concessional) super contributions cap will be reduced from $30,000 per year (or $35,000 if an employee is turning 50 or over before 1 July 2017) to $25,000 per year, for everyone, irrespective of age.
This means, depending on your employees’ circumstances, there is an opportunity to contribute an additional $5,000 (or $10,000 if they’re turning 50 or over) in before-tax super contributions than what will be possible before the cap is lowered at the end of the 2016-17 financial year.
After-tax super contributions
The after-tax (non-concessional) super contributions cap will decrease from $180,000 per year to $100,000 per year. This means your employees could contribute $80,000 more in after-tax super contributions than what will be possible when the after-tax super contributions cap is reduced on 1 July 2017.
For employees under age 65, they could also bring forward three years’ worth of after-tax contributions up to a maximum of $540,000 this financial year, which is much higher than the $300,000 limit that will apply from the 2017 financial year.
Summary of the cap changes
|Contribution type#||Employee age||Current cap||Cap from 1 July 2017|
|Before-tax super contributions||50 or over*||$35,000 per annum||$25,000 per annum|
|Before-tax super contributions||Under 50||$30,000 per annum||$25,000 per annum|
|After-tax super contributions||Under age 65**||$180,000 per annum and up to $540,000 under the bring-forward rules||$100,000 per annum and up to $300,000 under the bring-forward rules|
|After-tax super contributions||65 or over||$180,000 per annum||$100,000 per annum|
# Note: for individuals aged 65 or over at the time of making a contribution, a work test must first be satisfied.
* At any time during this financial year
** At any time during the financial year in which the contribution is made
What else employees should be aware of
A non-concessional contribution cap of $1.6m will come into effect
From 1 July 2017, individuals with a total superannuation balance of $1.6 million or above will not be able to make any after-tax contributions. This means the current financial year may be the last opportunity for employees to make after-tax contributions.
Why super matters
Australians are living longer and with many needing to fund a longer retirement as a result, adding to super could make a difference to the lifestyle employees lead in the years after they finish working.
To put it into perspective, September 2016 figures show individuals and couples, around age 65, who are looking to retire today, need an annual budget of $43,372 and $59,619 respectively to fund a comfortable lifestyle in retirement. These figures assume individuals and couples own their home outright and are in relatively good health.1
How it impacts you
AMP’s financial wellness research found that feeling unprepared for retirement was a key trigger of financial stress among employed Australians.
The research also showed that 24% of employed Australians are financially stressed, which costs employers an estimated $47.2 billion a year in lost revenue through absenteeism and being distracted at work.
Helping your employees understand the opportunities around preparing for retirement could reduce the impact of financial stress in your workplace.
If employees need assistance
So that you’re aware, there are a number of other significant super reform measures that have not been discussed in this article.
To find out how reforms to super could affect your employees, encourage them to speak to their financial adviser. If they need help finding one, they can call us on 131 267 or you can point them to our find an adviser tool.
If your employees would like more information or are interested in watching a short video on the changes, featuring Dr Shane Oliver, Head of Investment Strategy and Economics, and Chief Economist at AMP Capital, please share our info page amp.com.au/2017superchanges.
|$25,000 per annum|
|$25,000 per annum|
The figures in each case assume that the retiree(s) own their own home and relate to expenditure by the household. This can be greater than household income after income tax where there is a drawdown on capital over the period of retirement. Single calculations are based on female figures.