The Federal Budget and what it means for your super

The Federal Budget and what it means for your super

One of the most contentious changes made in this year’s Federal Budget was a lifetime limit on superannuation non-concessional contributions of $500,000, backdated to 1 July 2007. The fact that this was to apply from 1 July 2007 was controversial because it introduced the notion of backdated policies and severely undermined confidence in the super system. It’s a bit hard to plan for retirement if what you’re planning on doing may not be allowed next year.

Not surprisingly this has faced severe opposition in the senate and last week Treasurer Scott Morrison announced that the plan would be scrapped in favour of a lifetime limit of contributions of any kind of $1.6m. Additionally, the annual $180,000 non-concessional contribution limit will be reduced to $100,000 from 1 July 2017, with the option to bring forward 3 years if you’re under 65 being retained.

While this will be a big relief to those planning their retirement, there will undoubtedly be some unintended consequences from the move. First and foremost is a likely rush of cash that will flow into SMSF accounts before the 1 July 2017 deadline. Under the existing rules that could mean a flow of three years’ worth of contributions ($540,000) into accounts over the next nine months in a rush to avoid the reduction to $100,000. 

As this cash will need to find a home and while term deposit rates remain at historically low levels, it’s a good bet that a lot of this cash will flow into shares and property. In the case of an overheated property market this is probably not the outcome the RBA wanted to see.

Probably the other big unintended outcome of the changes is the likely increase in gearing levels within super funds. This stands as a big risk – especially for the property market which is already becoming unaffordable for a large percentage of Australians - but also an important opportunity for future retirees that had planned for greater contributions than the lifetime $1.6m that will now be allowed. The ability to borrow money within a super fund will allow the super fund to have a significantly higher asset base based on maximum gearing levels afforded to property and share investments by lenders, and used wisely can be used effectively to combat the new limits.

Rivkin Finance has experience and relationships with a number of lenders to SMSFs, so please contact us on 1300 366 145 or by visiting if you have any questions regarding SMSF lending or any other form of finance. We have been able to secure owner-occupied rates as low as 3.7% and investment lending rates of 4.04%, so if this is below what you are currently paying then please contact us.

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Rivkin Finance is a Credit Representative of Constantia Finance Partners Pty Ltd (ACL 485034).    

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