26
July
2017

Allocated Pension maximums

Introduction of Allocated Pension maximums

In last year’s budget one of the many Superannuation changes was to introduce a maximum allowable allocated pension of $1.6 million. This does not mean you are unable to save more than $1.6 mil to provide for your retirement, it does however limit how much you are able to have in the tax-free pension environment.

These rules come into place for next financial year.  Those with in excess of $1.6 mil in allocated pension are required to rectify this before July 1 2017 and decrease funds in pension phase (this will be known as retirement phase as of July 1). There will be a 6 month grace period providing the excess is less than $100,000.

After this period, those in excess of the cap will see notional earnings taxed at 15% in the first year and 30% for subsequent breaches.

Those who are currently over the cap have 2 options. They are able to switch excess funds back to accumulation phase (which will see earnings taxed at 15%) or remove funds from the Superannuation system entirely.  We encourage those in this situation to seek advice on which is the most appropriate option.

An area which has created some confusion is the treatment of unfunded pension schemes, mostly defined benefit pensions usually associated with the old government super schemes. These are being valued at 16 times the annual pension ($100,000 annual pension will be the cap limit).

As these defined benefit pensions are generally non-commutable, the excess will be treated differently. Fifty percent of the income above $100,000 will be added to taxable income and then taxed at Marginal tax rates.

Funds in Non Commutable allocated pensions (also known as NCAP and Transition to Retirement pensions) will not count to the cap. It should also be noted that, as of July 1 2017, earnings in these pensions will be treated the same as Superannuation and taxed at 15% for income and 10% for capital gains. Currently earnings are the same as funds in pension phase and are tax free.

 

If this legislation is likely to affect you, we strongly recommend getting advice, as the best option to take depends on a number of factors and will differ on a case-by-case situation.

Author; Alex McKenzie Categories: Future Financial Services Blog

About the Author

Alex McKenzie

Alex McKenzie

Owner at Future Financial Services

Past:

  • Paraplanner at Zammit Partners Investments
  • Unit Trust Administrator at Colonial First State

Education

  • University of Western Sydney
  • Penrith High

About

As a Financial Planner I help people to achieve what they would like in life. This involves helping you to identify the things in life they would like , developing plans to help achieve them and strategies to protect what you already have. We do this by providing Financial Advice to guide you through your life stages.

The financial planning process involves determining a clients current situation and financial objectives and tailoring strategies to assist in best achieving those objectives.

I am an expert in superannuation, investments and insurance, these are tools we use to help you achieve your goals.

I aim to use my knowledge of superannuation, taxation and Centrelink to efficiently use your assets and income to achieve your financial goals.

Retirement and pre-retirement planning, wealth creation, asset protection, insurance planning and estate planning are all areas of advice that I provide.

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