APW Insight 3


This edition of APW Insights focuses on a more granular look at some of the Budget implications as we see them, based on the detail of the announcements on 3 May 2016. The actual shape of the measures will not be known until legislation is passed and therefore, planning should be mindful that the rules, as they are now, still apply.

We also take a look at the Opposition’s Superannuation policy to provide a deeper analysis of the potential superannuation landscape.

Coalition Policy

Superannuation Pensions

From 1 July 2017, the limit of capital that can be invested in a ‘pension bucket’ will be $1.6m therefore, by 30 June 2017, existing balances will have to be reviewed and where necessary trimmed back to the baseline of $1.6m. The remaining capital will be housed in an ‘accumulation bucket’. For clients with a SMSF, this will be an accounting entry only.

We have undertaken modelling to ascertain the tax implications of the proposed measure. The outcomes depend on whether there are 2 members in the fund (thereby allowing $3.2m to be allocated to the pension bucket) and the amount of capital in the fund. Just using a $5m fund and assuming the members are between 60-65, the tax implications from the pension cap range from 10.20% for a single member fund and down to 5.40% which is still very concessionally taxed when viewed against other tax profiles.

One definite positive will be the reduced compulsory annual drawings; that is; the compulsory minimum pension is based only on the $1.6M per person. 

In the above example, the annual drawings reduce from $200k to $64k for a single member or, $128k for a 2 member fund. The rules will not stop additional drawings from the accumulation bucket to supplement the reduced pension. 

Changes to Transition to Retirement Income Streams

The Coalition also intends to remove the tax free status of capital allocated to transition to retirement income streams (TRIS’). These are available from preservation age to age 65 and permit drawings of between 4% and 10% of a member’s balance. The current regime results in the pension capital attracting a zero tax rate however the federal Budget announcements included the removal of this status from 1 July 2017.

No changes were announced regarding the tax treatment of the payments made to the individual so the strategy will remain useful for cashflow augmentation, albeit with less tax incentives to adopt.


Superannuation Contributions

The decrease in the caps for superannuation contribution are a disappointment but a positive initiative is the removal of the work test for +65 year olds as well as the introduction of the ability for pay as you go (PAYG) employees to top-up their super if they haven’t salaried sacrificed up to the maximum.

Medical Specialists, for example who primarily derive income from private practice but also do a small amount of hospital work, often have cumbersome planning to ensure that they are able to make the full tax deductible super contribution each year. This initiative will be a bonus for employees in similar situations as well as retirees who still wish to contribute to super.


Labor Policy

The Labor Party has re-invigorated the policy that it took to the 2013 election which indicates that it has a firm view on what it will attempt to legislate if it forms government post 2 July 2016.

Taxation of pension earnings

The major announcement is around the taxation of earnings in super and Labor has targeted an earnings cap rather than the Coalition’s capital cap concept.

Under this proposal, once earnings from pension capital exceed $75,000, they will be taxed at normal accumulation rates of (up to) 15%. Under this regime, 100% of a superannuation balance will be able to be in pension phase however, there will be tax stratification for the earnings.

Again take the example of a couple with a combined $5m pension balance which earns 5% per annum. Earnings of $250,000 would be subject to tax of $26,250, assuming a full 15% tax rate applies. This is around 10.5%.

The tax rate is still low when compared to other tax profiles such as marginal tax rates or company tax rates.

The major problem with this regime is the insidiousness of the application of tax. If the portfolio earns more in one year, the tax will increase and careful portfolio construction will be required in some cases. Like the Coalition policy, a lower annual drawing rate can be designed by the allocation of a smaller level of capital to the pension pot however, as the above table suggests, there won’t necessarily be ‘one best number’.


Pension Capital ($)
















An example showing a range of possible outcomes for the level of tax free pension capital.

Superannuation contributions

Labor has not spelled out its approach to superannuation contribution however, has not rejected the Coalition’s reduction of the concessional contribution cap. We can only assume that Labor will introduce lower annual contribution caps however, at this stage no mention has been made of its position in respect of after-tax (non concessional) contributions which (perhaps unbeknown to it) would be a real differentiator in the policies of the major parties.


Comparison of the Major Party Policies



Concessional contributions

Non concessional contributions



Tax free pension CAPITAL capped at $1.6m

Reduce to $25k from 1/7/17

Life-time cap $500k per person effective from 1/7/2007

Earnings from pension capital >$1.6m taxed at current super rates.


Tax free INCOME from pension capital capped at $75kpa

No announcements this election but has previously  stated they will reduce the caps

No announcements but inly objection to the Coalition’s policy has been around the ‘retrospectivity’ of the start date.

No limit to the level of pension capital however earnings above $75k cap will be taxed as per current super rates.


Once the legislation is known, it may be appropriate to consider a variety of strategies to mitigate the tax impact. We design our portfolios on an objectives basis but keep an eagle eye on the tax implications.



The information provided in this Newsletter is general in nature only and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on information, you should consider the appropriateness of the information having regard to your objectives, financial situation and needs. Before making any decision, it is important for you to consider these matters and to seek appropriate legal, tax, and other professional advice.