Superannuation is a great saving vehicle to get ready for retirement,
but it is filled with rules, limits, legal jargon and it keeps changing from year to year.
Every time we have a change of our government we experience what is labelled as
"improvement of our superannuation system"
but all that happens, that introduces more and more confusion and complexity.
As of 30 September 2021, total superannuation assets in Australia amounted to $3.4 trillion.
Our total superannuation assets make Australia the 4th largest holder of pension fund assets in the world.
With that much money involved, superannuation is one of the biggest political battlegrounds to win your votes.
And this is the bottom-line reason, why we have all those ongoing changes being constantly thrown at us.
And that is not going to change anytime soon.
Having said that, every so often, a positive change is being introduced
and if you are in the age bracket that change applies to, you better pay attention
because soon enough, this positive change might be taken away with a new government.
And today's topic is exactly a great example of such positive change.
I want to introduce to you Superannuation Bring-forward Arrangements.
So I will explain;
1. What are bring forward contributions?
2. The background of it.
3. Who is eligible?
4. Triggering bring-forward rule
5. What to do next?
6. I will give you some examples.
My name is Katherine Isbrandt from About Retirement,
I am Certified Financial Planner and you are watching About Retirement TV
the place to find all the information you need when preparing for retirement or if you have already retired.
“Take time to deliberate; but when the time for action arrises, stop thinking and go in.”
That's what Napoleon Bonaparte says.
And that's exactly how I feel about those superannuation opportunities,
and in the minute you will know why. So let's go.
1. What are bring-forward contributions?
Bring-forward contributions are non-concessional contributions,
so contributions for which you do not claim tax-deduction that you bring-forward from future years.
So this is like pre-paying, or paying in advance future years of your super non-concessional contributions.
Please don't mix them with carry-forward contributions,
which work in the opposite direction, payment of unused contributions from the past years.
I have a full video explanation about that type of contribution:
"Improve your Super & Reduce Tax - Catch-up, Carry-forward concessional contributions"
And I will link that video at the end of this one, so you can continue watching and learning.
2. Background
Now, I want very quickly to show you the history of this type of contribution to understand why I say:
take the opportunity while it is available.
Under the bring-forward rules, providing that you have not triggered this rule yet,
you are allowed to bring-forward 3 years’ worth of your non-concessional contributions.
The top line is listing their financial years
and below the maximum allowable limit
of non-concessional contributions per each financial year from 2014 until 2024.
As you can see if you were preparing for retirement back in 2014, you were able to prepay up to $540,000
being 3 years’ worth of $180,000 per financial year.
But in 2015, government woke up thinking, well, this is too much of a good thing,
people will start selling all their assets
and move all money to superannuation and then to pension and everything is tax-free.
Well, we need to reduce the maximum allowable limit,
which was reduced from $180,000 down to $100,000 per financial year from 2017-18 onwards.
But then in 2021, the political game started all over again,
and the government allowed for the indexation to be applied to concessional and non-concessional contributions.
Therefore, as you can see on the graph, our previous $100,000 just got lifted up to $110,000 per financial year.
With such huge reduction of allowed contributions, you can see now why I keep saying don't pass this opportunity,
if this is the right strategy for you.
As Tom Peters says: "If a window of opportunity appears, don't pull down the shade."
3. Who is eligible?
This is where this seemingly straightforward strategy is becoming a little bit complicated,
and you have to meet all eligibility criteria before you make this contribution.
You have to check your total superannuation balance.
To make your bring-forward contribution you need to check your total super balance on 30 June of the previous financial year.
And the total super balance (TSB) includes balance of your superannuation accounts, rollover accounts, pension accounts.
For 2021-22 financial year total super balance limit is $1.7mil.
Then depending on their total super balance you can bring forward either 3 years, 2 years, or just 1 year of annual cap limit.
Then we have age limit. As everything with superannuation, age can be a big limitation,
so it is essential you are fully aware if you can or cannot use the bring-forward strategy.
If you are below the age of 67, you have no problem, you can make a non-concessional contribution
up to the annual cap limit and you can also use the bring-forward strategy,
providing you haven't triggered this in the prior years.
You do not need to be working in order to make this contribution.
If you are past the age of 67, that's where the problem starts,
as you are required to meet work test or work test exemption.
However I have a great news for you, fresh from the press.
Just now, the bill passed the Australian Parliament and awaits Royal Assent,
meaning formal acceptance by the Governor-General.
Therefore, if you are 67 but under the age of 75 you will be able to use the bring-forward contributions,
obviously subject to your total supperannuation balance,
without having to meet work test requirements.
This will be available to you from 1st July 2022.
4. Triggering bring-forward rule
If you wish to make a non-concessional bring-forward contribution this financial year
and contribute the full allowable cap,
then you better check that you have not triggered that bring-forward arrangement in previous two financial years.
You need to consider all your superannuation contributions made over those two years to all your superannuation funds.
Be careful if you exceeded your concessional, so your deductible contributions,
Well you, better get advice.
When I provide superannuation or contribution advice to clients, I always check history of clients contributions,
as otherwise, this might be a great great problem for them.
5. Well, what to do next?
Contributions are easy, you do not advise ATO about your contribution,
your superannuation fund will automatically report your contribution to the tax office.
There are no forms to complete, you can just transfer money from your bank account to your existing super fund.
If you don't have a superannuation account or you wish to change your super provider,
then yes, you have to complete application to open a new account and just complete the contribution details.
This will trigger the bring-forward rules.
6. Well let's have a look at some examples.
Last year Sue, who is 63 sold her investment property and had a remaining surplus funds of $280,000.
She wanted to boost her superannuation fund, therefore, she contributed the full balance to her supperannuation account
in 2020 -21 financial year.
She was eligible to do so, as she met the age limit,
on 30th June 2020, her total superannuation fund value was $390,000, therefore,
below the total supperannuation balance limit
and she checked that she had not triggered the bring-forward rules before.
This year, Sue received an inheritance of $100,000
and knowing that the annual non-concessional limit for 2021-22 is $110,000
she wants to contribute the full inheritance value into her superannuation.
Well I'm sorry Sue, you better get full advice here.
Last year she triggered the bring-forward rule
and used up $280,000 out of $300,000 limit.
Hence, she only now has allowance of $20,000 left to contribute to her superannuation fund.
Unfortunately, Sue has to wait 3 years before the bring-forward arrangement is available to her all over again,
providing, of course, the legislation is not changed.
Tom. Tom is 67 on 1st August 2021.
He has received an inheritance of 250,000 that he would like to contribute to super
and then he wants to commence a retirement income stream.
Unfortunately, due to his age, he is not eligible for the bring-forward arrangement.
To contribute in 2021-22 financial year, Tom would have to find a part-time job to satisfy the work-test requirement.
However, courtesy of the new legislation of extending the bring-forward rule to people up to the age of 75,
Tom will be eligible next year from 1st July 2022 to proceed with his non-concessional bring-forward contribution.
At that point, Tom will have to check his total super balance and contribution history
to ensure that he had not triggered bring-forward arrangement in the previous 2 years.
So here we go, what do you think about that strategy and the possibility of bring-forward contributions past the age of 67?
Considering that our life expectancy is getting greater and greater, it is a very positive initiative
to extend superannuation contribution beyond just the age of 67.
For more retirement suggestions and financial strategies, feel free to watch more of my videos right here
and I will leave some recommendations at the end of this video, as I always do.
But also don't forget to visit my website AboutRetirement.com.au that is fully devoted to the topic of retirement in Australia
and how to do it for the best financial outcome.
And while you are there on my website signed up to my newsletter
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And now as usual my recommendation: video no 1: previously mentioned explanation
of Carry forward contributions - Improve your super & reduce tax
two best financial outcomes achieved with one little strategy.
And video no 2: this is the whole series of videos:
all you need to know to maximise your Age Pension payments.
I will talk to you in my next video, bye for now.