What has changed?

The centrepiece of the recent changes to super is that people aged 60 and over are able to withdraw their money from super tax free, making super a very attractive investment option.

The price paid for this change is the introduction of caps that limit the amount of money that can now be contributed into super. These are:

§          a cap of $50,000 per annum (indexed) on concessional contributions

§          a cap of $150,000 per annum on after-tax contributions (or for people under age 65, single or multiple contributions up to a total of $450,000 over a three-year period).

The Government recognised that a sudden switch to these caps would create major challenges for individuals who are preparing for retirement and so has offered transitional caps that allow people time to prepare for the changes. 

The recent changes mean there has never been a more important time for you to focus on your super. Our view is that you simply can’t rely on the government pension, with couples needing roughly more than double the current pension amount to live a comfortable retirement.

So for the lifestyle you want in retirement, you will need to maximise the amount of money you have in super. To do this, you will need to have the following strategies in place:

A well-planned contribution strategy

The days where you could salary sacrifice large contributions in the last few years before retirement to give your super a boost are now gone.

Age-based limits on deductible contributions (ie those from your employer plus any made through salary sacrifice) have been replaced by a flat $50,000 cap per person per annum, with transitional arrangements of $100,000 per person per annum applying for those aged 50 and over until 30 June 2012.

To offset these changes you’ll need to regularly contribute much larger amounts from a much earlier age or take advantage of the transitional caps that are available (depending on your age). Contributing additional funds earlier gives your money more time to work for you, allowing you to harness the power of compounding and potentially improve investment returns.

An appropriate investment strategy

Having an appropriate, long-term investment strategy is crucial. By this, we mean you need to work out how long you have until retirement, the income you want in retirement and your appetite for risk. After determining these, you can then work out the best way to invest your super to achieve this.