Beat the superannuation changes

There is speculation that the government will make major changes to the superannuation system in the May federal budget. The question for many investors is whether they should take action now to try to maximise both concessional and non-concessional (after-tax) contributions, in particular the bring-forward rule of $540,000 each, before any possible super changes are announced. The bring-forward rule allows for three years worth of non-concessional contributions to be made in the one financial year. With the annual cap set at $180,000, it means that $540,000 can be contributed to super as a one-off.

Regardless of speculation on super changes, if money is available to make large non-concessional contributions - and if there is no issue with putting this money away until retirement - generally speaking people should be looking to maximise their super contributions.

However, caution should be adopted when it comes to borrowing to make large contributions. For starters, there are better ways of borrowing to invest and the interest on the borrowed sum is not tax deductible. Second, borrowing to invest usually involves riskier assets, as it would not make sense to borrow money at 5% to invest in a term deposit at 2.5%, and this strategy may alter the risk profile and asset weightings of your fund. However, if money was soon going to be available to repay the debt, then it could perhaps be an option worth considering.

It is important that those who are in a position to maximise their concessional contributions do not waste the opportunity. With either a $30,000 or $35,000 contribution limit in place (depending on your age) it still provides one of the largest tax-saving opportunities for most individuals. Given that it may not be as generous next financial year, this year's cap should not be wasted.

The importance of planning -including having your super invested appropriately, whether life and other insurances should be held in super and the fees that are paid on your account - will all become more important if a lifetime limit is placed on contributions. People will need to become more engaged with super at a younger age and self-managed funds will probably become even more popular as people wish to take more control of their super.

Jonathan Philpot, Partner, Wealth Management, HLB Mann Judd Sydney, a firm of accountants and business and financial advisers and part of the HLB Mann Judd Australasian Association.

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