Q: I turned 61 this financial year and I will continue to work part-time for the next few years until I retire. I have been reading about the changes from 1 July 2017 to Superannuation contributions. I am confused about the new $1.6 million Superannuation limit. Can you please explain what the changes mean?

A: As you are 61 you are eligible to make contributions to Superannuation without satisfying a work test. If you were over age 65, you would be required to satisfy a work test of 40 hours in a 30 day period in the Financial year prior to making a contribution to Superannuation.  From 1 July 2017, there will be additional restrictions on being eligible to make contributions to Superannuation.  It is really important that you are aware of the impact of the 1 July 2017 to your personal circumstances.  The changes can be confusing, especially when it comes to how much you can contribute and the introduction of the lifetime caps for both contributions and pensions.

Effective 1 July 2017, the Government is lowering both the Concessional (pre-tax) and Non-Concessional (after-tax) contribution caps. From 1 July, the Non-Concessional contribution cap has been reduced to $100,000 per annum from the current limit of $180,000.  There will also be a new $1.6 million Superannuation balance limit.  If your Superannuation balance (including Pensions) exceeds $1.6 million, then you will be unable to make further Non-Concessional contributions to Superannuation.

Up until 30 June 2017, the current rules apply.  It will be possible to make a Non-Concessional contribution of up to $180,000 for one year, or to bring forward three years’ contributions ($540,000) as you are under age 64 as of 1 July 2016.  If you do not use the full limit of $180,000 or $540,000 in the 2016/17 Financial year, then you will be limited to the $100,000 annual and $300,000 bring forward caps for future years.

If you have a Superannuation balance (including Account based pensions) exceeding $1.6 million, you may be able to contribute into superannuation prior to 1 July 2017. This door closes on 1 July 2017 as you will be prevented from making any further Non-Concessional contributions if you exceed this limit.

Under the new world of Superannuation, greater consideration needs to be given to funding retirement as a couple.  The aim is to remain within your personal $1.6 million lifetime Superannuation cap whilst maintaining your eligibility to contribute into super to maximise the benefits provided in retirement phase as a couple, which is also capped at $1.6 million per person.  If you are close to, or exceed your lifetime cap and your Spouse has a lower balance, strategies such as Spouse contribution splitting allow you to transfer 85% of your employer contributions (and salary sacrifice contributions) to your spouse each financial year provided they are under age 65.

Not to be confused with the $1.6 million Superannuation Contribution Balance Cap, the $1.6 million Pension cap is a limit imposed on the total amount that a member who has retired can have in the tax-free pension phase account from 1 July 2017.  Any excess funds above the $1.6 million cap for pensions must be retained in the accumulation phase.  The investment earnings in accumulation phase will be subject to a tax at 15%. This is a significant change as there is currently no cap on the amount of funds that can be held in Account based pensions.

The superannuation rule changes are complicated, if you are concerned about the changes, you should seek advice to ensure you understand the consequences to your personal circumstances. Carefully consider taking advantage of the limited window of opportunity pre 1 July 2017 to contribute into superannuation.