COVID-19: Is there a silver lining to the impact of market movements on your super?

Is now the time to put more into your super?

Your portfolio may have experienced positive returns over years since the financial crisis in 2008-2009. Since then, the ASX200 index has almost doubled from February 2009 to January 2020. However, due to the impact of Coronavirus (COVID-19) on the global markets, some gains have been lost.

As part of the Government’s Superannuation Reform Package in the 2016/17 Federal Budget, the measure to allow individuals to carry forward their unused concessional contributions cap from previous financial years to a later year was introduced. Known as the carry forward rule, the legislation took effect on 1 July 2018.

The carry forward rule allows individuals to make additional concessional contribution in a financial year by utilising unused concessional cap amounts from up to five previous financial years, providing their total superannuation balance just before the start of that financial year (being 30 June of the previous financial year) was less than $500,000.

How the carry forward rule works – a case study

As an example, Bob is aged 60 and had a total superannuation balance of $550,000 as of 30 June 2019. In the 2018/19 financial year, he had utilised $15,000 of his concessional contributions cap. As the annual concessional contributions cap for the 2018/19 financial year was $25,000, he has an unused concessional cap of $10,000.

Let’s assume his total superannuation balance on 30 June 2020 has dropped to $490,000, reflecting the negative returns of the Covid-19 financial impact and he utilised $20,000 of his concessional contribution cap in the 2019/20 financial year. The concessional cap for the 2020/21 financial year is $25,000. Bob can choose to carry forward his unused concessional cap of $15,000 ($10,000 from 2018/19 and $5,000 from 2019/20) into the 2020/21 financial year, therefore increasing his concessional cap to $40,000.

This allows Bob to boost his retirement savings and potentially reduce his tax payable in the 2020/21 financial year.

It is important to note that when working out an individual’s unused concessional cap, the super guarantee contributions, salary sacrificed concessional contributions and personal deductible contributions will need to be considered. Unused concessional contribution cap amounts not utilised after five financial years can no longer be carried forward.

Should you wish to discuss this strategy in more detail, please contact your financial advisor.

Article written by Sandy Wong

This information is of a general nature only and neither represents nor is intended to be specific advice on any particular matter. Bentleys (Australia) Pty Ltd strongly suggests that no person should act specifically on the basis of the information contained herein but should seek appropriate professional advice based on their own personal circumstances. Although we consider the sources for this material reliable, no warranty is given and no liability is accepted for any statement or opinion or for any error or omission.

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