Consider John and Jane’s story before new rules limit your super contributions and pension transfer options.
John’s aged 65 and Jane is 60—they’re both about to retire. John has super assets totaling $2 million and Jane’s super balance is $300,000. Because neither has made a non-concessional contribution (NCC) recently, the three-year bring-forward rule hasn’t yet been triggered.
That means John and Jane have a chance to take advantage of the currently higher contributions caps and boost their super a lot more than they’ll be able to once the rules change on 1 July 2017. And the benefit in boosting their super now is that more of their money will have access to super’s beneficial tax rules than when the new rules come into play.
Restricted income in retirement…
John and Jane’s retirement plans involve converting their accumulated super monies into account-based pension accounts which will provide them with regular income to support their retirement lifestyle.
But the new rules will introduce a pension-transfer cap which means that from 1 July 2017 no more than $1.6 million can be transferred into an individual’s retirement pension account.
With $2 million in super, John will exceed the cap and will therefore be unable to transfer all of his accumulated super into an account-based pension. John would need to leave about $400,000 in the superannuation accumulation phase or take the money out of super altogether and invest it outside (and subject to his marginal tax rate).
…or financial advice?
John and Jane had read in the paper about the introduction of the pension cap. They were unsure how they may be affected in retirement.
And because they visited their financial adviser early enough, they were able to consider the various options in dealing with John’s $400,000.
The value of advice
The financial adviser shows John and Jane how to work within the new rules and share money across their two superannuation accounts. The adviser recommends that John make use of a re-contribution strategy before 30 June 2017.
The re-contribution strategy enables John to withdraw up to $540,000—comprising three years’ worth of NCC contributions under the bring-forward rule—from his super fund and deposit it as a spouse contribution into Jane’s super fund.
Under the guidance of his financial adviser, John withdraws $500,000 and uses it to make a spouse contribution into Jane’s super fund.
John’s account balance falls below the $1.6 million cap to $1.5 million. Jane’s balance increases to $800,000. The result is that all of John and Jane’s combined superannuation monies can be transferred into account-based pensions and accessed as income without any money needing to be taken out of the tax-friendly super environment.
If John had not undertaken the re-contribution strategy until after 30 June he would have been limited to contributing a maximum of $300,000 into Jane’s super fund, and would have been required to withdraw the excess super money from the super environment or leave it in the accumulation phase.
Seek advice before the new rules take effect
From 1 July, you’ll be unable to put as much money into super as you can right now. So unless you thoroughly understand all of the opportunities you may have right now—and the incoming restrictions—it’s important to come and see us. We can help you consider your own circumstances in light of the new rules.
Be sure to act now, before it’s too late.
Source: AMP Life Limited.
Note: The above example is for illustrative purposes only.
Important information: Any advice in article is general in nature and is provided by AMP Life Limited ABN 84 079 300 379 (AMP Life). The advice does not take into account your personal objectives, financial situation or needs. Therefore, before acting on this advice, you should consider the appropriateness of this advice having regard to those matters and consider the product disclosure statement before making a decision about the product. AMP Life is part of the AMP group and can be contacted on 131 267 or firstname.lastname@example.org If you decide to purchase or vary a financial product, AMP Life and/or other companies within the AMP group will receive fees and other benefits, which will be a dollar amount or a percentage of either the premium you pay or the value of your investments. You can ask us for more details.