Breaking - Govt scraps $500,000 lifetime Super cap

[Andrew from Vista Financial]

This is good news for UK Pension Transfers!!!

 

 

The Government will scrap a key element of its superannuation reforms, doing away completely with the controversial $500,000 lifetime cap on non-concessional contributions.

 

The shock announcement came after The Daily Telegraph exclusively revealed Treasurer Scott Morrison would take the revised package to the coalition party room this morning.

Mr Morrison confirmed the retrospective $500,000 lifetime cap on non-concessional contributions would be replaced by a new measure limiting non-concessional contributions to $100,000 a year, down from a cap of $180,000.

 

That means workers will be able to put up to $100,000 a year to top up their superannuation from after tax income until their superannuation reaches a limit of $1.6 million.

 

 

Mr Morrison said all up, Australians could contribute $325,000 a year, with tax concessions, until they reach the limit of $1.6 million.

 

The revised package has received backing from the coalition party room after conservative MPs were furious the $500,000 cap, which limited tax concessions on superannuation, had angered the party’s base.

 

That is regarded as a big win for Mr Morrison who secured Labor backing for $6 billion in savings earlier this week.

 

Mr Morrison said he expected Labor would support the superannuation package and insisted the compromise showed the 45th parliament would work.

 

“What I accept is when you’re in government you have to solve problems, you have to work issues and you have to get to conclusions and that’s what we’ve done,’’ he said.

 

 

“What we’re demonstrating this week is we can get things done in the 45th Parliament which is what we were elected to do. Now many were observing, compensating, that this wouldn’t be possible. That this Parliament wouldn’t work. Now, still a long way to run, but I think the early runs on the board.”

 

“It removes every impediment that Labor had mentioned.’’

 

Former cabinet minister Eric Abetz, who had led the party room crusade against the $500,000 cap, immediately welcomed the change.

 

“The removal of both the $500,000 concessional cap and any retrospective elements is what the superannuation community told me were the two major concerns with the package and I am pleased those components, in particular, have been removed and that other components have been delayed,” he said.

 

The revised package is a big win for the government. The cap had become a sticking point for the Government which was facing a major backlash within the Coalition party room to get unified support for the super reforms that had been taken to the election.

 

Mr Morrison is understood to have wanted the superannuation issue sorted before a three week break of parliament.

 

It is understood Labor had planned to use the final Question Time today to reignite the superannuation debate, knowing it would cause division within the party.

 

The opposition laid the platform grilling Revenue Minister Kelly O’Dwyer in parliament yesterday.

 

THE FACTS

 

WHAT’S ON THE TABLE NOW FOR SUPERANNUATION

* Cut annual non-concessional contributions cap to $100,00 a year (down from $180,000).

 

* Under 65s can still “bring forward” three years’ worth of non-concessional contributions in a lump sum.

 

* Those with with superannuation account balance of more than $1.6 million can’t make non-concessional (after tax) contributions after July 1, 2017. * They can make “catch-up” concessional contributions starting from July 1, 2018 (delayed by a year).

 

WHAT DOES THIS MEAN?

Each year you will be able to contribute up to $125,000 to your superannuation (combined before and after tax amounts) until your account balance reaches $1.6 million. If you want to “bring forward” a lump sum, you can contribute up to $325,000 in any one year.

 

WHAT IS NO LONGER PLANNED?

* A $500,000 lifetime cap on non-concessional contributions, backdated to 2007. * Keeping a work test for people aged 65-74 who want to make extra contributions to their super.

 

 

http://www.dailytelegraph.com.au/news/superannuation-reform-government-to-scrap-500000-cap/news-story/267723aca006e0749d7537e0432b67f3

[AJ]

and everyone has got 325000 lying spare to put into their Super!

[theroberts]

and everyone has got 325000 lying spare to put into their Super!

 

No but everyone the libs care about does!

[Parley]

No but everyone the libs care about does!

 

Actually this was done to appease Labor.

[Gbye grey sky]

So this then will mean that if you have more than $325,000 in a private UK pension you will not be able to bring it over in one sum but will somehow have to parcel it and transfer it in stages if I am reading this correctly.

 

And still the only option is an SMSF and you have to be over 55.

 

This change appears to do little to help most ex-pats with private pensions stuck in the UK unfortunately.

[Parley]

Can't you do 3 years worth in one go ? I think you can.

[Ken]

So this then will mean that if you have more than $325,000 in a private UK pension you will not be able to bring it over in one sum but will somehow have to parcel it and transfer it in stages if I am reading this correctly.

 

And still the only option is an SMSF and you have to be over 55.

 

This change appears to do little to help most ex-pats with private pensions stuck in the UK unfortunately.

 

If you have more than $300,000 you'll have to parcel it up and move in stages ($100,000 a year after the initial $300,000 - unless you want to do $300,000 every 3 years). The other $25,000 of the quoted $325,000 is reserved for taxed contributions (e.g. the SGC on your Oz salary).

[Alan Collett]

So this then will mean that if you have more than $325,000 in a private UK pension you will not be able to bring it over in one sum but will somehow have to parcel it and transfer it in stages if I am reading this correctly.

 

And still the only option is an SMSF and you have to be over 55.

 

This change appears to do little to help most ex-pats with private pensions stuck in the UK unfortunately.

 

 

 

Those with UK pension fund monies valued at $325k should really be having a chat with one of the specialists in this area, such as Andrew. IMHO.

 

Best regards.

[Parley]

I read that the new caps commence 1st July 2017 so there is still an opportunity to deposit $180,000 this financial year and then $300,000 the following year.

[Andrew from Vista Financial]

 

This change appears to do little to help most ex-pats with private pensions stuck in the UK unfortunately.

 

I think that depends on the circumstances of the individual, for me overall this is a better outcome than the $500,000 lifetime cap because there is still the ability to bring funds valued at over $500,000 across albeit in tranches.

[Andrew from Vista Financial]

I read that the new caps commence 1st July 2017 so there is still an opportunity to deposit $180,000 this financial year and then $300,000 the following year.

 

Correct, in fact I have seen some articles that suggest $540,000 is still available now although I personally would take care with that strategy.

 

The other option is potentially $380,000 now ($180,000 x 2 future years of $100,000).

 

Just to note with UK pension transfers if someone is transferring after being resident for 6 months and wishes to pay the tax on the growth from their pension monies ie have it deducted by the receiving scheme then the from fund must be fully closed so transferring in tranches needs to be managed to allow for this.

 

Regards

 

Andy

[Ken]

Correct, in fact I have seen some articles that suggest $540,000 is still available now although I personally would take care with that strategy.

 

The other option is potentially $380,000 now ($180,000 x 2 future years of $100,000).

 

Just to note with UK pension transfers if someone is transferring after being resident for 6 months and wishes to pay the tax on the growth from their pension monies ie have it deducted by the receiving scheme then the from fund must be fully closed so transferring in tranches needs to be managed to allow for this.

 

Regards

 

Andy

 

The $540,000 is arrived at by adding the allowance from the two previous years (provided you didn't already use them) to the current year. You are not allowed to draw on future years so the figure should be $540,000 - there are no grounds to think it would be $380,000.

 

From 2018 onwards it depends on what they write in the law but based on the $325,000 maximum quoted in statements then presumably they will word it to say you will only be allowed to carry forward a maximum of $100,000 from 2016 and 2017 rather than the $180,000 you had available in each of those years so that the maximum available in 2018 will be $300,000.

 

While it'll be pretty clear for people who haven't used any of their allowance in previous years it doesn't explain what'll happen if people used part of their allowance already. Say someone had already used $90,000 of a previous year's allowance. Does that mean they will still have an extra $90,000 available in 2018 (because they are allowed to carry forward $180 - $90 = $90 which is less than $100) or is it $50,000 (because they already used 50% of their allowance) or is it $10,000 (because the new allowance is $100 - $90 they've used)? Won't know until the actual wording of the law is out and quite possibly won't even know then and will have to wait for some case law.

[Andrew from Vista Financial]

The $540,000 is arrived at by adding the allowance from the two previous years (provided you didn't already use them) to the current year. You are not allowed to draw on future years so the figure should be $540,000 - there are no grounds to think it would be $380,000.

 

From 2018 onwards it depends on what they write in the law but based on the $325,000 maximum quoted in statements then presumably they will word it to say you will only be allowed to carry forward a maximum of $100,000 from 2016 and 2017 rather than the $180,000 you had available in each of those years so that the maximum available in 2018 will be $300,000.

 

While it'll be pretty clear for people who haven't used any of their allowance in previous years it doesn't explain what'll happen if people used part of their allowance already. Say someone had already used $90,000 of a previous year's allowance. Does that mean they will still have an extra $90,000 available in 2018 (because they are allowed to carry forward $180 - $90 = $90 which is less than $100) or is it $50,000 (because they already used 50% of their allowance) or is it $10,000 (because the new allowance is $100 - $90 they've used)? Won't know until the actual wording of the law is out and quite possibly won't even know then and will have to wait for some case law.

 

 

Hello Ken

 

It seems that your understanding of this is not correct I'm afraid.

 

It is called the bring forward rule: http://www.vistafs.com.au/attachments/Educational_Guide__NonConcessional_Contributions.pdf & https://www.ato.gov.au/General/New-legislation/In-detail/Super/Lowering-the-annual-non-concessional-contributions-cap/

 

Therefore the grounds I based it on was that the current NCC is $180k + 2 future years of $100k = $380k.

 

I think the suggestion by some of using the $540,000 now may be based on using the full $180k now and for the next two financial years ($180k each year) as legislation has not yet been passed and technically these are the current rules but as I have said above I would be very careful with this.

 

I've received a technical update since the posts above on how some of this may work for people who may have already triggered the bring forward rule or triggers the bring forward rule in this financial year as follows (Asteron being the source of this):

 

Bring forward NCCs – transitional rules clarified

 

Stop Press - 21 September 2016

 

The Government has provided further clarity on how the proposed bring forward and the $1.6 million eligibility threshold will work.

 

Bring-forward NCCs – transitional arrangements

Where an individual has triggered the bring forward in 2015/16 or 2016/17 but has not used it fully by 30 June 2017, transitional rules will apply.

 

Where an individual triggers the bring forward in 2016/17, the transitional cap is $380,000 (the current annual cap of $180,000 plus $100,000 annual cap in 2017/18 and 2018/19).

 

If an individual triggers the bring forward in 2015/16, the transitional cap is $460,000 (the current annual cap of $180,000 in 2015/16 and 2016/17 plus $100,000 annual cap in 2017/18).

 

 

$1.6 million eligibility threshold

Individuals are unable to make further NCCs where their total superannuation balance is $1.6 million or more (tested at 30 June of previous financial year). Where an individual’s balance is close to $1.6 million, they can only make a contribution or use the bring forward to take their balance to $1.6 million but not beyond.

 

Note: these measures are not yet legislated. Draft legislation is expected in the next few weeks.

 

 

 

Kind regards

 

 

Andy

[Paul1Perth]

From all the reading I've done you would have to be pretty well off for any of the changes to affect you. Me and the wife are decently paid, she's a nurse I work in IT and we won't even be close to any figures that will affect us come retirement. We have only ever put the minimum in till I hit 60 a couple of years back and I did the transition to retirement setup. Good tax break but guess what, both my super accounts with MLC have lost money over the last 12 months and with the uncertainty the world over I can't see it getting any better. The good old pension is there though and the house doesn't get included as an asset so we should be almost on a full pension. Look into it anyone who's not checked. You might be pleasantly surprised when the pension kicks in and how much it is. I reckon we'll get by just fine. We both have some to come from the UK too as I was in my late 30s when I came, my wife a little younger but we had both been working from 16.

Typical Liberal tactics though, look after the rich.

[Keith and Linda]

From all the reading I've done you would have to be pretty well off for any of the changes to affect you. Me and the wife are decently paid, she's a nurse I work in IT and we won't even be close to any figures that will affect us come retirement. We have only ever put the minimum in till I hit 60 a couple of years back and I did the transition to retirement setup. Good tax break but guess what, both my super accounts with MLC have lost money over the last 12 months and with the uncertainty the world over I can't see it getting any better. The good old pension is there though and the house doesn't get included as an asset so we should be almost on a full pension. Look into it anyone who's not checked. You might be pleasantly surprised when the pension kicks in and how much it is. I reckon we'll get by just fine. We both have some to come from the UK too as I was in my late 30s when I came, my wife a little younger but we had both been working from 16.

Typical Liberal tactics though, look after the rich.

 

I thought a labour gov brought it in Paul? and most likely been tweaked by both party's since. And I think it was the Labour party (or the main player anyway) which stopped the $500,000 lifetime limit, something which the so called rich would have most likely already reached by now anyhow hence the back dating of the proposal to stop them putting even more in.

[Alan Collett]

"We have only ever put the minimum in till I hit 60 ..."

 

Not contributing more into your superannuation was your choice, Paul?

 

Some choose to save using superannuation and as such have more funds available in senior years. It means they don't have to rely quite so much on the taxpayer funded Age Pension - which you appear happy to receive.

 

Best regards.

[Andrew from Vista Financial]

Having given further consideration (and discussions with Technical) to the $540,000 it seems that the legislation doesn’t specifically refer to the amounts being brought forward as the dollar value of the non-concessional contribution for the ensuring years, rather, subsection 292-85(4) defines the non-concessional cap as being 3 times the cap i.e. $180,000.

 

Therefore it seems that a person who has not triggered the bring forward rule in the previous two financial years and has not made any non concessional contributions so far this financial year may be eligible to contribute the full $540,000 using the bring forward rule up until 30 June 2017.

 

Of course please do not rely on my comments as advice (they are general comments only) and take advice for your own situation if considering using the bring forward rule.

 

Regards

 

Andy

[Paul1Perth]

"We have only ever put the minimum in till I hit 60 ..."

 

Not contributing more into your superannuation was your choice, Paul?

 

Some choose to save using superannuation and as such have more funds available in senior years. It means they don't have to rely quite so much on the taxpayer funded Age Pension - which you appear happy to receive.

 

Best regards.

Yes it was my choice and a very good one as it turns out. Both my and my wifes super funds haven't performed well at all. They went backwards again last year so we did the best we could and paid off our mortgage quicker.

 

Don't you think people should be happy to receive the pension after working all their lives or are you indicating we should be feeling a little guilty? We don't. I still reckon people with a mortgage and spare cash would be better sorting that out before putting extra in super. What are your thoughts?

[Alan Collett]

Yes it was my choice and a very good one as it turns out. Both my and my wifes super funds haven't performed well at all. They went backwards again last year so we did the best we could and paid off our mortgage quicker.

 

Don't you think people should be happy to receive the pension after working all their lives or are you indicating we should be feeling a little guilty? We don't. I still reckon people with a mortgage and spare cash would be better sorting that out before putting extra in super. What are your thoughts?

 

 

I think the Age Pension is too generous and should be more limited in its availability.

 

I am also of the persuasion that says individuals should be responsible for their own destiny, and relying on the taxpayer/Government debt for welfare should be more limited than pertains now where far too many are suckling on the teat of Centrelink.

 

Best regards.

[Keith and Linda]

Yes it was my choice and a very good one as it turns out. Both my and my wifes super funds haven't performed well at all. They went backwards again last year so we did the best we could and paid off our mortgage quicker.

 

Don't you think people should be happy to receive the pension after working all their lives or are you indicating we should be feeling a little guilty? We don't. I still reckon people with a mortgage and spare cash would be better sorting that out before putting extra in super. What are your thoughts?

 

Hi Paul, maybe worth checking out about changing funds, my industry super fund was over 7% last year.

During my early years here in Aus there was a push on remortgaging your home and investing it into shares (super) with super paying out more percentage wise than your mortgage interest rate, so for round figure talking super paying 10% and mortgage charging 7% then you had a net gain of 3%. which does make economic sense but there are risks and they did materialize and super funds went backwards. Currently that 3% margin still applies for me, though my own home is mortgage free which like you we said bugger to the economics lets just own our home! I do have small investment home mortgage, and at present this and super each get a little extra.

 

Regarding state pension and feeling guilty, I understand where you are coming from as Brits we were brought up thinking and told that we pay-in to the Gov all our lives and we expect to get something back when we retire, I still have my expectations on that too, however I have no such expectations for such in Aus and would want and in fact have the ability to better any Gov pension, well at least in the shorter term and with the full knowledge that the Gov pension would be a decent fall back.

[Paul1Perth]

Me and the wife have been to a couple of retirement planning presentations, they were run by the hospital she works at so free to go. Funny walking in as we both said it's the first time we'd been anywhere when the rest of the crowd looked old, you forget your getting old yourself, most of our friends are around 10 years younger and we both still do lots of sports.

The presentations opened our eyes though to how generous the pension is. We were amazed really how decently off you can be and still get something. I agree with Alan in that maybe it is a bit too generous and hardly a driver to get people to "invest" in super.

 

The transition to retirement at 60 seems a decent tax break so I've been taking full advantage but unless super starts performing a lot better and there's no signs it might, then I reckon pay your mortgage off first then try the transition to retirement and max out the limits. Any more and you just end up paying more tax.

 

We won't feel the least bit guilty about getting whatever pension we are due to. We've both worked since 16 so have paid in our fair share of tax over the years. Governments keep changing the rules as it is though and my wife won't be able to get anything till she's 67. They may change again too.

[shore]

Hi

 

im new to this site but have lived in perth for 13 years and ohh boy do i love it would never wish to live in the uk again just a quick question if anyone can give a bit of advice please, im 47 and have over 250,000 gbp in a uk pension that I have just found out about what I really want to do is set up a smsf over here so can i transfer it over to oz I have read that

[shore]

Hi

 

im new to this site but have lived in perth for 13 years and ohh boy do i love it would never wish to live in the uk again just a quick question if anyone can give a bit of advice please, im 47 and have over 250,000 gbp in a uk pension that I have just found out about what I really want to do is set up a smsf over here so can i transfer it over to oz I have read that I will have to pay the tax on the growth which I have found out is 80,000 pounds since I have been here, would that tax be at 55% or 15% I really would love my pension over here as I have no plans to ever return to the uk I have since had another child whilst being here so no way going back have my own roots in australia now . thanks kate

[Andrew from Vista Financial]

Hello Shore

 

Sorry for the delay in responding.

 

Unless you are a government employee and a member of one of the limited government Super funds on the HMRC ROPS list then it will not be possible to transfer your pension to Australia directly at this stage until you are age 55.

 

Typically at age 55 this can be done by using a SMSF as a vehicle (as it is possible to obtain QROPS) however there is now also a retail super fund on the HMRC ROPS list: http://www.pomsinoz.com/forum/money-finance/252177-1st-retail-q-rops-super-fund-hmrc-rops-list.html and I understand a further one is to follow very soon.

 

A very strong consideration for you (if you have a defined benefit scheme) would be to take advice now on moving it out of the current scheme, the reason being is that cash equivalent transfer values (CETVs) for defined benefit schemes are currently historically high mostly due to UK interest rates being so low, therefore you could potentially lock in a higher value than waiting until you are age 55.

 

If it looks to be in your interests to transfer out then this could involve a sideways move to a UK SIPP for example or a QROPS in another jurisdiction such as Malta/Gibraltar, then when the time is right the monies could be moved to Australia in time for retirement.

 

It will be very likely that the best course of action for the move to Australia will be progressive transfers since the likely maximum non-concessional contribution amounts a person can make to superannuation from next year in one go will be $300,000.

 

Staged transfers do require vary careful planning to ensure that the tax can be mitigated where possible so advice would be highly recommended for that part as well.

 

Regards

 

Andy