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Preparing for the super changes

Tighter superannuation rules will apply from 1 July 2017 as part of the super reforms announced in last year’s Federal Budget.

The new rules include the introduction of a $1.6 million super balance cap for after-tax contributions; a maximum of up to $25,000 for concessional contributions; and the removal of the current “bring-forward” rule allowing $540,000 of contributions in one year.

Although the new rules will come into effect from 1 July 2017, individuals can take advantage of the current rules to top up their nest egg.

Individuals under 65 who wish to make a large contribution, in particular, those with inheritances or who have recently sold a property or other large asset can make the most of this last-chance opportunity to contribute up to $540,000 until 30 June.

From 1 July 2017, individuals will only be able to bring forward up to three year’s worth of after-tax contributions, i.e $300,000 over three years.

The bring forward rule can not be accessed by those aged between 65 and 74 who meet the work test, however, they can still make annual after-tax contributions.

Those with balances in excess of the $1.6 million cap will need to review their super before 30 June to continue to make after-tax contributions. Furthermore, individuals with a balance close to $1.6 million will only be able to bring forward the annual cap amount for the number of years that would take your balance to $1.6 million.

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Expert advice on early superannuation access as a result of COVID-19

April 2, 2020

Under the coronavirus stimulus package released and revised by the Australian Federal Government on 22 March 2020, individuals in financial trouble due to the negative economic impacts of COVID-19 will be able to access their superannuation funds early. However, while the option is available, it is recommended that individuals only consider withdrawing from their super in the case of absolute emergencies and treat it as a last resort.

With the new rules on superannuation, workers whose incomes are reduced by at least 20% due to the COVID-19 outbreak are allowed to take $10,000 out of their super for the 2019-20 financial year and another $10,000 for 2020-21. Individuals will also not need to pay tax on any withdrawn amounts and existing welfare payments will not be affected either.

While the introduced early access to superannuation funds may be inviting for newly unemployed workers, it is important to consider whether the temporary relief is necessary and worth foregoing super funds available for long term investment. For example, even when accounting for Australia’s slowing economy in the coming years, $10,000 is predicted to be worth over $65,000 in another 30 years.

Especially for younger workers who are less likely to have access to other savings, the choice to give up future savings for current comfort is a difficult one. Experts instead are recommending Australians to apply for the other payments and benefits made available to vulnerable Australians through the coronavirus stimulus package, such as added $550 fortnightly supplements to Australians on JobSeeker payments and other welfare recipients and pensioners.

Experts also predict that the Australian Government will introduce more stimuli for increased cash flow in the Australian economy and more payments for unemployed, struggling and vulnerable Australians in the case of COVID-19 becoming more of a serious economic issue. Hence, withdrawing funds from your superannuation account should be considered a last resort and not for the sake of unnecessary temporary relief.

In addition to being allowed early access into individual super funds, superannuation minimum drawdown rates will also be temporarily reduced by 50% for account-based pensions and others similar until 2021.

The Government has also reduced the upper and lower social security deeming rates by a further 0.25 percentage points, with upper at 2.25% and lower at 0.25% which will come into effect on 1 May 2020.