By Graeme Colley
Soon, a new measure will be in place to help boost retirement savings.
From 1 July 2018, any unused concessional contribution entitlement can be carried forward and used within the next five subsequent years.
Commonly known as catch-up contributions, the measure can be used by any member whose total superannuation balance is less than $500,000.
With similar terminology, the measure is not to be confused with a ‘bring forward’ arrangement, which enables those under the age of 65 to bring forward two years of non-concessional contributions.
Bob, whose super balance is less than $500,000, has an unused concessional contribution entitlement of $20,000 from the 2017/18 financial year. He can carry this unused entitlement into 2018/19, enabling him to make $45,000 worth of concessional contributions ($20,000 carried forward plus $25,000 pertaining to 2018/19).
The new measure helps unlock opportunities.
Casuals and part-timers, and those who’ve been out of the workforce, are at a natural disadvantage in terms of retirement savings. Under the new measure, concessional contribution entitlements that would have previously lapsed can be used once a person’s employment situation improves.
There’s also opportunity with associated tax deductions. From 1 July 2017 the ‘10% restriction’ will be lifted and all individuals will be able to access tax-deductible super contributions. This in combination with the catch-up measure provides greater capacity and flexibility to contribute and tax-deduct in order to offset taxable capital gains and other forms of taxable income.
It should be noted that the tax deduction is only available to an individual and not to an employer or another party. It will rule out an employer claiming a deduction for a catch-up contribution.
In assessing a person’s balance, it is their balance for the previous financial year that is relevant. For example, in making a catch-up contribution in FY 2018/19, the person’s balance as at 30 June 2018 will be used.
Due to market volatility, a person’s balance in super on 30 June from year to year may go up or down. In some years the balance may be less than $500,000 and in some others years may be more. It could lead to someone missing out on claiming the catch-up contribution in years when the balance counted is more than $500,000 and their personal income has increased over the previous year.
While the catch up concessional contributions will enable many people to make additional concessional contributions, the real challenge will be in determining whether those with a balance in the region of 500,000 are within the cap.
