How do changes to superannuation from 1 July affect you?

With the new financial year upon us, it is now a good time to start planning your finances for the next 12 months. The below article looks specifically at some of the changes to superannuation to be aware of from 1 July. Whether you just are starting out building wealth or planning to wind back towards retirement, taking a proactive view of super now can make a significant difference to your retirement nest egg.

Increase to Super Guarantee Contributions (SGC)

From 1 July, the super guarantee limit has increased from 9.5% to 10%. This will provide a boost to the super balance of Australian workers, and is part of the mandated increases to super guarantee, which is due to increase by 0.5% annually until reaching 12% from 1 July 2025.

For many, this increase will effectively be a 0.5% pay rise. However, for some workers paid on a total package basis, this increase may be funded by a 0.5% decrease in their take-home pay. It is worth confirming with your employer how this will affect you.

Below are the increases in super guarantee over the coming years:

Contribution limits

Contribution limits have been indexed, giving you the capacity to contribute more to super than in previous years. The concessional (pre-tax) cap and the non-concessional (post-tax) cap have both increased.

For anyone on a higher tax bracket, concessional contributions can provide significant tax benefits. Concessional contributions are taxed at 15% or 30% depending on income levels, while personal tax rates can be as high as 45% plus Medicare.

Bring forward rule

The bring forward rule can provide an opportunity to move significant funds to the tax-effective super environment.

If you are 64 or under on 1 July, the bring-forward rule enables you to make 3 years’ worth of non-concessional contributions in one year. The total super balance caps remain unchanged, but if eligible this allows up to $330,000 non-concessional contributions in a single year (previous maximum was $300,000).

Carry-forward contributions

If you meet eligibility requirements and didn’t maximise the concessional contributions cap in previous years, this rule allows you to make additional pre-tax contributions in the current tax year, over and above the $27,500 cap.

If your super balance was less than $500,000 on June 30 the previous year, the carry-forward rule allows you to utilise unused concessional contributions from previous years, starting from 2018/19. This will continue forward on a 5 year rolling average, meaning any unused amounts from 2018/19 will expire if not used by the end of 2023/24.

With the new financial year, there are now three previous financial years where any unused contributions can potentially be carried forward.

Transfer balance cap

The transfer balance cap is the maximum amount allowed for an individual to roll funds across from accumulation to pension phase in super. Moving funds across to pension phase can be very tax-effective strategy as investment earnings are tax-free in retirement.

The cap has indexed from 1 July to $1.7 million.