Cabinet recently gave in to immense pressure from the backbench and announced plans to scrap their controversial superannuation lifetime cap, thereby giving Australians more flexibility with their future nest eggs. The cap, originally intended to limit people to $500,000 of super contributions over their entire life, has now been changed to a $100,000 yearly cap.

The proposed $500,000 limit on after-tax contributions was to be backdated to July 2007, which meant that many Australians would be affected. After much debate with Labor and opposing members of their own party, the Coalition have agreed to scrap the plans and instead impose a $100,000 annual cap.

The Flaws With The Original Plan

When it was announced in the May 2016 Budget that the $500,000 cap would come into place, there were many questions about what would happen to an individual’s existing super accounts. Considering this cap dated all the way back to 2007, there would be many affected who had already put a substantial amount of their income into super.

The government announced that if an individual had already exceeded the cap before the commencement day, they would be free to keep this amount in their super accounts but would not be able to make any more concessional contributions. However, for those who had made their contributions after the commencement date, the ATO demanded that this excess amount is withdrawn from their super accounts.

Where this plan began to confuse many was that the government was proposing to backdate on people’s careful planning and wise investments into superannuation over the last nine years and tax this at a higher rate than usual, which seemed extremely unfair.

What This New Plan Means For Your Super

On 15th September 2016, the Government announced changes to their controversial super plan, to the relief of many individuals as well as political groups. The proposed changes now meant that an individual could make up to $100,000 of non-concessional or after-tax super contributions per year without penalty.

This new plan is set to commence in 2017, but will also include a stipulation that any individual with over $1.6 million in their super account will no longer be able to make non-concessional contributions.

The move is estimated to cost the Government $400 million over the next four years. However, to offset the change they will scrap the proposal to harmonize contribution rules for those aged 65 to 74. This means the Government will effectively save $180 million altogether.

Making Choices on Your Super

Navigating your way through superannuation policies, procedures, and legislation can be difficult. Reforms such as this recent one can make it even more confusing to know what to do with your superannuation to ensure you’ve planned responsibly for your future.

How much super each person needs will depend on the individual, and you should factor in everything from proposed medical costs to living expenses throughout your retirement. The ASFA estimates that for an average couple to live modestly in retirement, they’ll need approximately $35,000 per year to survive. Depending on your personal circumstances this figure could change significantly, but it’s a good starting point to consider when calculating your super contributions.

If you’re struggling to know what to do with your superannuation, or need advice on how best to invest for your future retirement, the team at Hart Partners are here to assist. Our expert team can help you navigate through the confusion of policies and proposals to come up with a strategy that best suits your needs. Contact us today on 03 9600 3220 to see how we can help plan for your future.