Ask Peter Scott (December) 2016

Question 1:

I am 62 years of age, I currently have a Transition to Retirement Pension with First Super (Drawing $750 per fortnight) and a Salary Sacrifice arrangement with my Employer for $1,000 per fortnight. I understand that the Federal Government introduced number of changes that may affect my current arrangements superannuation arrangements, could you please explain how these proposed changes?

Answer:

The Federal Government has introduced a number of changes to the current superannuation arrangements, however two of these changes will have a direct impact on your current strategy:

1. The Concessional Contribution Limit (known as the Cap)

Reduction of the concessional Contribution Cap from $35,000 to $25,000 effective from 1 July 2017. (The concessional Contribution Cap includes your Employer’s Superannuation Guarantee and the Salary Sacrifice Contributions). You will need to review your Superannuation Salary Sacrifice arrangements to ensure that you do not exceed the $25,000 ‘Cap’ in the 2017/18 Financial Year. In addition, the income you draw from the Transition to Retirement pension should also be reviewed to ensure your original TtR/Salary Sacrifice strategy continues to meet your needs.

2. Transition to Retirement Pensions

The income derived from the assets backing the First Super Transition to Retirement Pensions is currently exempt from Tax, however, from 1 July 2017 the investment returns will be subject to tax at a rate of 15% and this may result in a reduction in the crediting rate that is applied to your account for this pension type. As these changes are now law, I believe you should consider meeting with your Financial Planner and review your current arrangements and make the necessary adjustments to ensure that the strategy is still appropriate for your needs.

Question 2:

My wife and I are both 68, homeowners and currently receive a reduced Age Pension because of our current level of assets ($500,000), we also have an Allocated Pension with First Super (receiving $1,000 per fortnight).

Could you please explain the changes that will come into effect from 1 January 2017 and what will be their impact on my wife and I?

Answer:

The new Age Pension Asset Test that will apply from 1 January 2017 are as follows:

Homeowner Status	Asset Test Free Area	Reduced Pension for Assets between
Single – Homeowner	$0 to $250,000	$250,000 and $542,500
Single – Non Homeowner	$0 to$450,000	$450,000 and $742,500
Couple – Homeowners	$0 to $375,000	$375,000 and $816,000
Couple – Non Homeowner	$0 to $575,000	$575,000 and$1,016,000

(Source: Department of Human Services 20th September 2016)

The new Asset Test limits from 1 January 2017 that will apply to you and your wife, will see the lower threshold increase to $375,000 and the upper threshold reduce to $816,000. Based on these new limits, you may see a reduction in your current Age Pension.

Please note: In December 2016, Centrelink will advise affected Age Pension Recipients of the changes relating to their pension.

If you find that the reduced age pension and your First Super Allocated Pension will not meet your income needs, you should contact you Financial Planner to discuss your requirements, and if necessary, arrange to have your Allocated Pension income changed to meet your needs.