![Those wanting to make use of the current more generous after-tax contributions need to act soon.](/content/dam/images/g/r/t/4/x/d/image.related.afrArticleLead.620x350.gsag3q.png/1477528260162.jpg)
While some massaging around the edges is a possibility, there is a growing awareness that the major change to superannuation in the government's 2016 reforms is the introduction of the $1.6 million limit on super entitled to tax-concessional pension treatment.
The new magic number affects both contributions and pensions.
Various strategies are likely to revolve around the $1.6 million limit, a number of them this year in advance of the official July 1, 2017 implementation.
These include taking advantage of contribution opportunities in the current 2016-17 year that won't be available next year, as well as planning any necessary restructuring.
As far as any possible government adjustment to the $1.6 million limit, the most likely could be giving older retirees with defined benefit pensions some relief from the proposed 16 times multiplier that many regard as quite severe for this group.
The 16 times multiplier, says pensions expert Meg Heffron of Heffron SMSF Solutions, is perfectly sensible if you're a relatively young person, between 55 and 65, receiving a lifetime pension indexed to inflation.
But if you're in your 80s or 90s, it is a completely unreasonable multiplication factor, she says.
That said, it could be argued this is a temporary problem because most people start super pensions somewhere between the ages of 55 and 65. So after July 1, 2017, the multiplier is probably okay.
Where it is flawed, says Heffron, is when you assess the June 30, 2017 values of long-established pensions for older pensioners as having a similar value to pensions that are only just starting for much younger people.
It might therefore be possible for the government to give people in this situation some kind of special treatment, she says .
As far as restructuring arrangements are concerned, a reader identifies what is likely to be a relatively common situation for anyone with a defined benefit pension who also has a self managed fund where the combined values are in excess of $1.6 million.
He asks: "If indeed the $1.6 million pension limit is to include income from a defined pension fund, then our SMSF will require restructuring.
"What I am contemplating is withdrawing an amount of $360,000 – the amount I have calculated necessary to bring my (combined) pension account below the $1.6 million limit – from my SMSF pension account and making a non-concessional contribution into my wife's pension member account which happens to be well below the $1.6 million limit.
"However, this then raises another question. My wife turns 65 in December 2017. She does not work and will not qualify with the work test requirement. The current treatment of non-concessional contributions applies until July 1, 2017.
"My understanding is my wife can make the $360,000 non-concession contribution before July 1, 2017 using the current three-year bring-forward period for individuals under 65."
The reader ponders whether this effectively means $180,000 can be contributed this 2016-17 financial year and the balance of $180,000 the next year before she turns 65. But having said this, he notes that non concessional annual contributions will be limited to $100,000 from July 1, 2017.
"Does this then mean she can only make a non-concessional contribution this financial year of $180,000 plus $100,000, a total of $280,000?"
According to financial planner Tony Bingham of Godfrey Pembroke in Sydney, the contribution solution is a lot simpler than that proposed by the reader.
The question does focus on the non-concessional contribution entitlements where a member can take advantage of the current rules that allow the bring forward rule until their 65th birthday whether or not they are currently working.
Up until June 30, 2017 his wife can bring forward up to three times the current annual non-concessional cap of $180,000, a total of $540,000, and not be affected by any changes that will be introduced from July 1, 2017.
Assuming he is entitled to withdraw the $360,000 from his pension account, says Bingham, this full amount can be transferred to her super account. It is a very useful restructuring opportunity.
Heffron says the reader's suggestion that only $280,000 can be contributed is a misunderstanding prompted by not fully utilising the three-year entitlement before July 2017.
Where someone contributes the $540,000 three-year entitlement this year, they don't need to worry about the contribution limit imposed by the $1.6 million pension balance limit. Nor do they need to scale down contributions this year because next year's non-concessional cap reduces to $100,000.
But the situation is different if they haven't triggered the bring forward of their non-concessional contributions limit in either 2015/16 or 2016/17, and not fully utilised it before July 2017. This would affect the reader if his wife contributed some of the full $540,000 allowance this year and they hoped to contribute "the rest" next year.
For example, if they contributed $360,000 this year and they hoped to contribute more in the following year, they will need to watch out for two things.
First, will they be allowed to make additional non-concessional contributions at all? This entitlement will depend on the application of the new $1.6 million limit for contributions – if the contributor's balance is more than $1.6 million at June 30, 2017 they can't make any non-concessional contributions at all during 2017-18.
Second, assuming they can make non-concessional contributions, how much is possible? The $100,000 a year non-concessional limit begins on July 1, 2017.
Where someone has contributed more than $180,000 this 2016-17 financial year but not in 2015-16, they will trigger a three-year bring forward period that applies from July 1, 2016 to June 30, 2019. If they don't use this up completely in 2016-17 (say, as the reader suggests, they only contribute $360,000 in 2016-17) the amount of their "bring forward" entitlements that remains in 2017-18 and 2018-19 will be scaled back to reflect the drop in the non-concessional contributions cap to $100,000.
At July 1, 2017, the reader's wife will have her three year limit re-set to $380,000 ($180,000 for 2016-17 and $100,000 for each of the next two years).
This means that in the reader's situation having contributed $360,000 this year, their entitlement to contribute any extra in either 2017-18 or 2018-19 will be limited to a total of $20,000 under the $380,000 allowance.
Of course in this case, the reader will also have to watch the fact that his wife turns 65 in December 2017 and isn't working – so whatever contributions she decides to make will need to happen before her birthday.
This is a trap people need to be aware of, says Heffron. You've got to "use it or lose it" when it comes to the maximum possible three-year entitlement of $540,000, which adds an extra challenge to the immediate non-concessional contribution entitlement.
Where someone has a pension limit of $1.6 million, this might be their last throw of the non-concessional contribution dice. If they have plenty of scope to make further contributions, they can contribute either $100,000 a year in non-concessional contributions or $300,000 every three years until their super exceeds $1.6 million. That is, as long as they are eligible to make contributions.
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