How to cope with Super shock

The warning signals had been flashing for almost a year but the government’s budget call to downsize super still managed to shock.

As I have covered in several articles over the last 12 months, Australia’s superannuation system has presented an easy target for a government intent on balancing the books. And, unfortunately for a large number of Australians, that target proved too difficult to resist for the Turnbull administration.

The May budget went much further than many had feared, slashing both the concessional and non-concessional contribution limits as well as imposing a low ceiling for lifetime super savings.

Just to recap the two major changes: annual concessional contribution limits have been pared back to $25,000 for all super fund members (between $5,000-10,000 less than current levels); and, the government has set a new $1.6 million limit for super savings that can be used to generate tax-free income in retirement.

According to the Association of Superannuation Funds of Australia (ASFA), the lifetime limit will have an immediate impact on more than 100,000 members. The $1.6 million lifetime cap will likely also put a dent in the retirement aspirations of many more Australians.

The government has sold the super reforms as only affecting a minority of upper-income Australians. However, ASFA estimates the shrinking annual contribution cap will damage retirement outcomes for a much wider group of super fund members.

“While today less than 2 per cent of people (around 255,000) with superannuation make contributions above $25,000, a significant number of such individuals that have low balances are attempting to catch up,” ASFA says.

In previous articles, I’ve urged readers to seek advice on how potential changes to super could affect their retirement income assumptions – Integro has been road-testing a few scenarios with clients over the last year or so.

But now that we have detail on the actual changes it’s time to work through some real strategies with your financial adviser.

For example, investments outside super could become more attractive for a larger proportion of Australians. Or perhaps your family SMSF could be fine-tuned to efficiently comply with the new super restrictions.

There is a sliver of positive news in the May budget with a new super rebate for low-income earners. The new rules don’t take effect until next July but don’t leave it too much longer to get your super affairs in order: and make sure you take full advantage of the current super concessions while they’re still here.