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What is happening with superannuation caps?

Many aspects of superannuation are governed by limits or caps.

As we start a new calendar year, attention turns to what changes are likely to occur from the start of the next financial year (1 July).

There are two important caps that affect many Australians. One is the transfer balance cap, and the other are contribution caps.

Not only is the transfer balance cap the maximum amount a person is able to transfer into the pension phase of superannuation on retirement, but the general transfer balance cap influences the ability to make certain contributions to super and to gain access to concessions like the Government co-contribution and the spouse contribution tax offset.

The general transfer balance cap is currently $1,900,000. It is indexed in $100,000 increments in line with movements in the Consumer Price Index. The general transfer balance cap was last increased from 1 July 2023.

Without getting into the technicalities of the way in which indexation works, the movement in the Consumer Price Index to December 2023 was not sufficient to see the transfer balance cap increase to $2,000,000 from 1 July 2024.

As a result, for the 2025 financial year, the transfer balance cap will remain at $1,900,000.

However, the situation is not the same for indexation of contribution caps.

Unlike the transfer balance cap which is indexed with movements in the Consumer Price Index, the concessional contribution cap is indexed in line with movements in Average Weekly Ordinary Time Earnings. (AWOTE)

The concessional contribution cap is currently $27,500 however this is to be indexed and will increase to $30,000 effective from 1 July 2024.

The non-concessional contribution cap (i.e. personal superannuation contributions for which a tax deduction is not being claimed) is four times the concessional contribution cap. Therefore, once the concessional contribution cap increases to $30,000, the non-concessional contribution cap will increase to $120,000 (from the current $110,000).

A unique feature of the non-concessional contribution is that a person aged 74 or younger at the start of a financial year, may bring forward up to three year’s non-concessional contribution cap, and are able to make a non-concessional contribution of up to (currently) $330,000 in a single year.

However, where they contribute more than the annual cap (current $110,000) in a particular year, the maximum they can contribute over the course of the next three years will be their three-year cap, reduced by the amount contributed in the first (and second) year.

For example, if the current cap is $110,000 and a person were to contribute $180,000 in 2023-24, the maximum they can then contribute up until 30 June 2026 is $150,000.

Where a person has already triggered their three-year cap, they will not be able to take advantage of indexation until the end of their current three-year period.

To add to the complexity, the ability to make non-concessional contributions is also influenced by what is known as a person’s total superannuation balance.

The total superannuation balance is the total of all money a person has in the superannuation system on the previous 30 June.

Where a person’s total superannuation balance exceeds the general transfer balance cap (i.e. $1,900,000) they are unable to make any further non-concessional contributions.

However, it gets even more complex when it comes to bring forward up to three years non-concessional contribution cap.

Without going into too much detail, the amount of contributions that can be contributed under the three-year bring forward provisions is scaled back once a person’s total superannuation balance exceeds $1,680,000. This will reduce to $1,660,000 from 1 July 2024.

Making contributions to superannuation can be an extremely complex matter.

Seeking appropriate advice from a licensed financial planner is highly recommended.

If you plan well, then you can retire well.  Come and speak to the friendly Financial Advisers and the team at Retire By Design on the lovely Northern Beaches who can help you with your Retirement Planning needs.