A(nother) new era of super
contributions advice
Tim Sanderson– Senior Technical Manager
June 2013
Disclaimer
This presentation is given by a representative of Colonial First State Investments Limited AFS Licence 232468, ABN 98 002 348 352
(Colonial First State). Colonial First State Investments Limited ABN 98 002 348 352, AFS Licence 232468 (Colonial First State) is the
issuer of interests in FirstChoice Personal Super, FirstChoice Wholesale Personal Super, FirstChoice Pension, FirstChoice Wholesale
Pension and FirstChoice Employer Super from the Colonial First State FirstChoice Superannuation Trust ABN 26 458 298 557 and
interests in the Rollover & Superannuation Fund and the Personal Pension Plan from the Colonial First State Rollover &
Superannuation Fund ABN 88 854 638 840 and interests in the Colonial First State Pooled Superannuation Trust ABN 51 982 884 624.
The presenter does not receive specific payments or commissions for any advice given in this presentation. The presenter, other
employees and directors of Colonial First State receive salaries, bonuses and other benefits from it. Colonial First State receives fees
for investments in its products. For further detail please read our Financial Services Guide (FSG) available at colonialfirststate.com.au
or by contacting our Investor Service Centre on 13 13 36.
All products are issued by Colonial First State Investments Limited. Product Disclosure Statements (PDSs) describing the products are
available from Colonial First State. The relevant PDS should be considered before making a decision about any product. Stocks
referred to in this presentation are not a recommendation of any securities.
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person who relies on the information contained in the presentation.
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© Colonial First State Investments Limited 2013.
What we’ll cover…
Changes since 1 July 2012
Super guarantee moves to 9.25% and age limit removed
Concessional caps permanently reduced for over 50s
Reduced co-contribution, introduced low income earner contribution
15% extra tax on concessional contribution where income > $300,000
Reforms to excess concessional contributions
Strategy impact to consider
Saving for retirement generally
Lower income earning clients – finding the right mix of contributions
Transition to retirement
Super guarantee opportunities and traps
Year
Rate
2012/13
9%
2013/14
9.25%
2014/15
9.5%
2015/16
10%
2016/17
10.5%
2017/18
11%
2018/19
11.5%
2019/20 or later
12%
Upper age limit removed
from 1 July 2013
Employers must ensure contributions
updated to avoid SG charge
Particularly for employees aged
75 and over
Employees should consider effect on
salary sacrifice arrangements
Opportunity for those over 75 to derive
OTE and add to super via SG
contributions
Concessional cap changes
Transitional cap for over 50s ended on 30 June 2012
Higher cap for those over 50 (with total super balance under
$500,000) proposed, then delayed to 2014, then abandoned
Flat higher cap of $35,000 now proposed
If aged 60 or over from 1 July 2013
If aged 50 or over from 1 July 2014
While simple to administer, higher cap is not indexed
Standard cap estimated to go to $30,000 in 2014 and $35,000 in 2018
Higher cap irrelevant once this occurs
Voluntary concessional contributions further limited by gradual
increase in SG
Contribution cap changes
Under
age 35
Aged
35 to 49
Aged
50 to 59
Aged 60 or
over
2006/07
$15,260
$42,385
$105,113
$105,113
2007/08
$50,000
$50,000
$100,000
$100,000
2009/10
$25,000
$25,000
$50,000
$50,000
2012/13
$25,000
$25,000
$25,000
$25,000
2013/14
$25,000
$25,000
$25,000
$35,000
2014/15
$30,000
$30,000
$35,000
$35,000
% change
since 2006/07
+97%
-29%
-67%
-67%
Cumulative contributions over 10 years
$1,400,000
$1,200,000
$1,000,000
$800,000
$600,000
$400,000
$200,000
$0
07/08
08/09
pre simpler super rules
09/10
10/11
11/12
Simpler super standard caps
12/13
13/14
14/15
15/16
Simpler super transitional / higher caps
16/17
Getting to $1 Million by retirement
$600,000
$500,000
$400,000
John needs to use $525,000 of
his gross income to get there
$300,000
Linda needs to use $264,000 of
her gross income to get there
$200,000
$100,000
$0
30
35
40
John's contributions
45
50
Linda's contributions
55
Recent cases highlight end of year timing issues
Contribution made to a clearing house by an employer on 27 June of
FY1, not passed to fund until late July of FY2.
Salary sacrifice agreement required employer to pay salary sacrifice on
a monthly basis, paid late and after end of FY1
Client made contribution by EFT on Saturday 28 June. Funds received
in super fund bank account 1 July.
Other things to be aware of:
Salary sacrifice and bonuses
Deductible contributions and taxable income
Changes to excess concessional contributions
Allow members to withdraw any excess contributions from 1 July 2013
not limited to $10,000 on one off basis
Excess taxed at member’s marginal rate plus interest charge
Excess non-concessional contributions still taxed at 46.5%
Reserve allocations?
not technically contributions, but ‘amounts’ that generally count toward
concessional cap
Contributions for high income earners
30% effective tax rate on non-excessive concessional contributions
where income exceeds $300,000
Income includes
Taxable income
Reportable fringe benefits
Total net investment loss
LESS taxable component of super lump sum within low rate cap
PLUS ‘Low tax super contributions’
Low tax super contributions Generally non-excessive concessional
contributions
Excludes untaxed rollovers / foreign super transfers
DB funds – ‘notional’ amount calculated by actuary
Certain state higher level office holders contributions to constitutionally
protected funds only counted if made under a salary package arrangement
Judges and justices – DB contributions generally ignored
What about excess contributions disregarded / reallocated?
Contributions for high income earners
Is super still viable for those who earn over $300,000?
46.5%
salary
$350,000
other income
$8,530
SG
$16,470
salary sacrifice
$8,530
$300,000
$250,000
$200,000
$16,470
$16,470
15%
30%
$15,000
$16,470
30%
30%
15%
$50,000
$50,000
$40,000
$250,000
$250,000
15% tax on all
contributions
15% tax / 30% tax on
contributions
$275,000
$275,000
30% tax on
contributions
30% tax / 46.5% tax on
contributions
$150,000
Contributions for high income earners
Collecting the tax – accumulation funds
Similar to excess contributions tax
Notice of assessment , due within 21 days
Voluntary release authority
Collecting the tax – defined benefit funds
ATO creates a ‘debt account’ against the DB interest, which accrues with
interest until an end defined benefit becomes payable (eg, retirement)
Client can make voluntary repayments off the debt account
Once the defined benefit becomes payable, notice of assessment and
voluntary release authority issued
Voluntary release authority can only be given to that relevant DB fund
What happens where a client has contributed to multiple funds?
Contributions for lower income earners
Co-contribution:
Maximum co-contribution
halved from 1 July 2012 to
$500
Matching rate reduced from
100% to 50%
Still reduces by 3.333c for
each dollar of income over
$33,516*
Reduces to Nil at $48,516*
* Proposed income thresholds for 2013/14
Low income earner contribution:
To be eligible
ATI does not exceed $37,000
10% test is met (same as cocontribution)
15% of concessional contributions,
up to maximum of $500
Where no tax return required, ATO
will calculate based on available
information
New ‘rules of thumb’ for low income earners
Optimal super contribution for $5,000 pre-tax income
$6,000
Total net super contribution
$5,000
$4,000
$3,000
$2,000
$1,000 NCC then
next $3,333 concessional
or NCC then
remainder NCC
$1,000
$1,000 NCC then
next $3,333
concessional
then remainder
concessional
NCC to maximise
co-contribution then
next $3,333
concessional then
remainder
concessional
NCC to maximise cocontribution then
remainder
concessional
$$10,000
Salary sacrifice
$15,000
$20,000
$25,000
Low income super contribution
$20,542
$30,000
$35,000
Income
Non-concessional
contribution
$31,920
$40,000
$45,000
Government co-contribution
$37,000
$46,920
Transition to retirement –
still effective?
Transition to retirement still effective
$749,931
$746,173
TTR $35,000 cap
TTR $25,000 cap
$711,814
TTR $50,000 cap
$735,935
No TTR
Example:
Client 55 years of age, earning
$100,000 p.a. with existing
super balance of $500,000.
Comparing impact of various
caps over 5 years while
maintaining net take home
income
Assumptions:
Return of 7% p.a.
Inflation: 3% p.a.
Nil indexation on salary
Any surplus income (above
CC available) re-contributed
as non-concessional
contribution
Retirement balance at age 60
Transition to retirement still effective
$784,008
TTR $35,000 cap
$763,944
TTR $25,000 cap
$711,814
TTR $50,000 cap
$773,085
No TTR
Example:
Client 60 years of age, earning
$100,000 p.a. with existing
super balance of $500,000.
Comparing impact of various
caps over 5 years while
maintaining net take home
income
Assumptions:
Return of 7% p.a.
Inflation: 3% p.a.
Nil indexation on salary
Any surplus income (above
CC available) re-contributed
as non-concessional
contribution
Retirement balance at age 65
TTR considerations
Reduced caps will have a different impact depending on:
Age
MTR
Super balance
TTR generally remains an effective strategy
Can even be effective with after tax contributions where:
Over 60
Large tax free component
Low income
Summary
Client situation
Strategy/ considerations
SG changes
• Employers – make changes to avoid SG
charge
• Employees, review sal sac
Low income client
• Squeeze every drop of government
superannuation incentives
All clients in pre-retirement
or wealth accumulation
stages
• Start making concessional contributions
earlier!
Very high income earners
• Pre-tax contribution still tax effective
• Watch out for income traps
Existing TTR clients
• Adjust salary sacrifice amount
• Adjust pension payment
• Consider alternative strategies for the
spare “$25,000”
• $35,000 cap provides some additional
value