Budget Hits Middle Class Mums and Dads … Unprecedented Grandfathering
May 17, 2016
The Federal Government’s 2016 Budget has unfairly impacted a generation of middle class ‘mums and dads’ who are already retired.
These retired mums and dads have diligently accumulated their savings throughout a lifetime of work where there was no compulsory superannuation or fiscal inducement to provide for their own retirement.
From the Hawke/Keating era retiring mums and dads were encouraged to provide an income stream during retirement by investing their own funds into superannuation. By selling rental properties, shares, term deposits and other investments the inducement was the healthy tax concessions that superannuation provided. The political objective was to have more retirees ‘self-funded’ and less reliant on the Federal Government’s social security system.
These unlimited contributions were encouraged until the May 2006 Federal Budget when limits on ‘non-concessional’ contributions were applied as political pressure mounted on taxing the wealthy (and middle class).
Why you need to plan your retirement now…
But it was the recent Federal Budget (3 May 2016) that delivered the knockout blow to these retired mums and dads by immediately changing the goal posts. From Budget night, the amount retirees can have in ‘pension phase’ will be capped at $1.6 million. This cap will be increased in $100,000 increments in line with the CPI.
An ever bigger disappointment with this legislation is that, if passed, it will not be grandfathered, a change that in my memory is unprecedented with superannuation changes. This means that retirees with more than $1.6 million in pension phase will be forced to either withdraw the excess from the super system, or rollover back to accumulation phase where earnings tax applies.
Provided you are able to split your superannuation with your spouse, being part of a couple will be an advantage as each person will be able to have $1.6 million, which should be more than fair. However, if you are single or if you become widowed during retirement the new rule is likely to force a restructure to your Financial Strategy.
Not sure how the 2016/17 budget will affect you?
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