Downsizer contributions could rise as inflationary pressures bite
Inflationary pressures may see a surge in downsizer contributions as people try to maintain cash flow and debt servicing, predicts an SMSF technical expert.
In the latest SMSF Adviser podcast, Tim Miller, technical and education manager for Smarter SMSF, said in terms of downsizer contribution-related age changes it will be interesting to see where SMSF members will sit with real estate investments, non-concessional contributions, and the indexation of the transfer balance cap as living expenses continue to rise.
“Coming up to 30 June it will be interesting to see what happens, primarily because of the indexation of the general transfer balance cap to $1.9 million from 1 July,” he said.
“It begs the question whether people will be implementing non-concessional contribution strategies this year, or next year, with a higher balance and how many non-concessional strategies will be used.
“Certainly, from a concessional contribution strategy point of view, we’re certainly, I think, going to see a lot of people looking to utilize their carry forward concessional contribution strategy to maximise capacity or to claim personal tax deductions.”
Mr Miller said inflationary pressures will probably impact contributions to some extent, as well.
“Where people may have previously been accelerating contributions, for whatever purpose, such as retirement planning, or for LRBA, it is the fact that we’ve got inflationary pressures, and changing the indexation of the cap, not in $100,000, but in the $200,000 blocks, and that may be having a bearing on people’s own individual circumstances and their capacity to be able to service debt outside of superannuation,” he said.
“This moves the needle in terms of what they could potentially put inside super as a salary sacrifice or even as a member deductible contribution at the end of the year.”
Mr Miller said the latest interest rate rise and subsequent rise in mortgage repayments may trigger a surge of people looking to downsize as they try to shrink their mortgage debt.
“With the reduction age to 55 [for downsizer contributions], it’s far more relevant,” he said.
“You might look at your post 65-year-olds as not having mortgages, but certainly those in the 55 to 65-years category are more likely to still have some level of debt.
“So, potentially, we’ll see a little bit of movement there because of the inflationary pressures and the pressures of those higher interest rates.
“What becomes very apparent in tax planning season is there is a real interaction of various contribution strategies and a lot of these things can actually interplay as part of the tax planning opportunities with the clients.”
