The effects of inflation and cost of living pressures have dominated BT’s most-asked adviser queries – and the financial services firm has noted indexation from rising inflation could impact the best time to commence a new income stream.
In the latest review of questions asked of BT’s regulatory team, it noted the impact inflation will have on indexation, particularly for the super transfer balance cap which could increase to $1.9 million from 1 July 2023 unless legislated to change.
The cap, which is currently $1.7 million, is the amount of super that can be transferred to tax-free retirement income streams.
Regular indexation of certain legislated thresholds is designed to ensure the amounts stay in line with inflation, but according to BT “rapid increases” in the level of CPI during 2022 could mean there is a double indexation of the cap this year, leading to the $200,000 increase.
BT technical consultant Tim Howard noted if there are clients planning to start a retirement stream before the end of the financial year, it might be worth re-considering if this the best outcome.
“Would they be better off delaying the commencement of the income stream until after 1 July 2023, so they can gain the maximum indexation benefit?”
Howard tells Professional Planner advisers generally accept the key driver behind the recent successive interest rate changes is to curb inflation.
“This naturally has a knock-on effect on the spending and savings capacity of clients with outstanding debts, while being of benefit to some self-funded clients who are able to get a higher return on their cash,” he says.
Howard adds the total superannuation balance threshold is equal to the general transfer balance cap which he expects to increase at the same rate.
“Advisers are understandably expecting the same inflationary pressures to drive up the superannuation contribution thresholds from 1 July 2023,” he says.
“However, we haven’t seen the same increase in average weekly ordinary time earnings (AWOTE), the figure used to index the concessional contribution cap.
“With the non-concessional contribution cap set at four times the concessional contribution cap, it would not move either, unless there is a change to the concessional cap.”
Fun for young and old
To ease cost of living pressures and the labour shortage, older Australians on the Age Pension can now earn up to $11,800 from working without risk of reducing their pension, which was the most asked about topic according to BT.
Previously, pensioners could earn up to $7,800 during the year. This temporary increase was due to end in June but has been extended to the end of the year.
Additionally, for the first time in over 20 years, the income thresholds for the Commonwealth Seniors Health Card have been raised outside of indexation.
The income thresholds for singles increased to $90,000 from $61,284; and for couples, the increase was to $144,000, from $98,054.
Eligibility for the Commonwealth Seniors Health Card gives seniors access to valuable concessions, such as cheaper medicine under the Pharmaceutical Benefits Scheme. Card holders may also receive economic support payments.
Howard also said there had been enquiries regarding the change in law which reduced the eligibility age for downsizer contributions from 60- to 55-year-olds has now become law which became effective at the start of the year.
This means individuals can make downsizer contributions to their super fund from the proceeds of selling their home, but to be eligible the house needs to have been owned for at least a decade.
Downsizer contributions can only be a maximum of $300,000, but do not count towards any of the contribution caps or $1.7 million super balance cap.
For the rare younger client that might have children, BT noted there is a “substantial” increase to the Child Care Subsidy rate from July, increasing from 85 per cent to 90 per cent with a combined income of less than $80,000.
The CCS will reduce by 1 per cent for each additional $5,000 of annual income. For example, a couple with a combined income of $120,000 would receive a CCS percentage of 82 per cent, and couples with a combined income of $300,000 would receive 46 per cent.
While BT’s service has been a repository of wisdom for advisers, there are some matters the firm has been unable to answer.
Howard says one matter advisers would like clarity on is whether there will be legislation to allow clients to exit certain legacy retirement income products.
Legislation to do so had been announced by the former government, but the current government is yet to provide any guidance whether it will proceed with the measure.
Additionally, Howard says the government’s response to the Quality of Advice Review is “eagerly anticipated” by advisers.
“Should the government look to proceed with any of the recommendations in the review, we would expect consultation periods and new legislation to be drafted – and so it would likely take some time for significant changes to become law,” he says.