The retirement savings vehicle that was so proudly introduced by a former Labor government as a compulsory system by which Australians provide for their own welfare in retirement is often in the news. It is often in the news for all the wrong reasons: the one thing that doesn’t change is that superannuation investment benefits the member on two fronts:
- it is a ‘forced’ savings strategy; and
- it is taxed favourably (for most members);
and regardless of the changes that we have seen to date, it will continue to work in favour of the vast majority of members investing through this vehicle.
Superannuation benefits the community
One of the challenges for any community is the capacity to provide financial adequacy and certainty for the aged, the infirm and the disabled throughout their lifetime. As individuals, that challenge becomes more in focus in retirement – when the capacity to earn a regular income from productive activity has ended. These challenges tend to reflect as anxieties within communities: anxieties that lead to health and other concerns that disrupt harmonious community living.
The assurance of the social security system being underpinned by an increasingly self-sufficient personal superannuation system, benefits the community as there is less of a draw on the national finances.
Superannuation benefits the government
Whilst the taxation provisions that apply to various aspects of superannuation are relatively generous compared to funds accumulated outside of that structure, it is apparent that superannuation investment made by eligible fund members, benefits the government coffers. This is increasingly affirmed as the amount accumulated in superannuation accounts in Australia totals in the trillions of dollars.
In this article, we respond to the regular and continuing discussion that persists around the changes to superannuation. The concern for most people is that at some stage the government will ‘change the rules’ so that investment in superannuation is no longer comparatively beneficial. The sheer volume of money tied up in the system means that governments of all persuasions will have to give consideration to how superannuation is treated within both the taxation and the social welfare systems.
In the 2016 Federal Budget there were a number of changes proposed (but which may/ may not come into effect, depending on the outcome of the double dissolution election to be held on 2 July 2016). The key areas of change under consideration as a consequence of the 2016 Budget, are:
- changed ‘caps’ for nonconcessional contributions (effective from 7:30 pm on Budget night, 3 may 2016); and on concessional contributions (from 1 July 2017);
- changed contribution eligibility (effective from 1 July 2017, allowing members up to the age of 75 years to make concessional and/ or nonconcessional contributions – up to the prescribed caps – without having to pass ‘the work test’); and
- changed taxation provisions (depending on the level of earnings the member has including their superannuation guarantee amount contribution; and on the level of funds held in a retirement account).
Superannuation investment benefits persist
So the vexing question is: should you be making contributions to your superannuation account this year under the same considerations as you have previously? We say yes. What could you contribute to your superannuation accumulation account this financial year (2016)?
The following table summarises what is possible:
| Contribution type |
Under 65 years of age |
Over 65 years of age** – satisfies ‘work test’ |
Over 65 years of age – no work eligibility |
| Concessional(1) Contribution cap |
$35,000 | $35,000 | Nil |
| Concessional(1) Contribution cap – if under 50 y.o.a. |
$35,000 | N/A | N/A |
| NonConcessional(2) Contribution cap |
$180,000 | $180,000 | Nil |
| (1) Concessional Contributions are those that are able to be paid from pre-tax dollars, reducing your taxable income |
(2) Non-Concessional Contributions do not allow a deduction from taxable income of the contributor |
* If the Non- Concessional Contribution is being made in a year up to including the year the contributor turns 65 years of age, a bring-forward provision allows a contribution of up to $540,000: but obviates further contributions during the following two financial years. |
Note: the 2016 Budget proposal has proposed a lifetime non- concessional cap of $500,000 bringing to account all such contributions since 1 July 2007. |
The superannuation investment benefits of providing for a retirement goal continue to be available: the taxation consequences of pursuing those options are also continuing, albeit varying over time. Investing in most non-superannuation environments result in income tax being paid at the investor’s individual marginal tax rate.
(For current caps on superannuation contributions – Concessional and Non-Concessional – refer the relevant Page on the ATO website.)
Optimise you superannuation investments
Continuum Financial Planners Pty Ltd acknowledges that whilst taxation cannot be ignored when strategising investment decisions, it should never be the sole consideration in those circumstances. If you are in a position to make a contribution to your superannuation fund before the end of this financial year, please contact our office to discuss any constraints you may have to consider – and to discuss other aspects of the proper management of your superannuation account. Call on 07 3421 3456; or use our online Contact Us page to set up a meeting or conversation.
This article was originally posted in May 2013: it has occasionally been refreshed, most recently in January 2021. ATO page links updated in June 2021.
