While a lot of attention has been focused on the new limits for pre-tax superannuation contributions from 1 July 2017, the Budget 2016 super changes also packed a surprise punch in the form of notional employer contributions for members of defined benefit superannuation schemes.
Prior to 1 July 2017, only the funded employer contributions to defined benefit schemes counted towards the concessional (pre-tax) contributions cap, but from 2017/18 onwards, a new notional amount of defined benefit contributions counts towards the cap instead.
But the notional employer contributions are usually much higher than the employer productivity contributions.
Shortly after the end of a financial year, the trustee of the relevant scheme determines the amount of notional defined benefit contributions for that year in accordance with the tax legislation and factors ascertained by actuaries.
The amount of notional defined benefit contributions varies between schemes. For example, a full-time member of the Public Sector Superannuation Scheme (PSS) on a super salary of $100,000 and making member contributions at 5% will have notional defined benefit contributions of around $8,600 per year.
A member in the same situation could expect this figure to be around $14,700 for the Commonwealth Superannuation Scheme (CSS), $12,700 for MilitarySuper (MSBS), and $10,725 for the Defence Force Retirement and Death Benefits (DFRDB) scheme.
Significant changes to your member circumstances, such as moving from part-time to full-time (or vice versa) or ceasing eligible employment, can affect the amount of notional employer contributions applicable to you in a given financial year.
Subtle changes to your superannuation salary, member contribution rates and taking some forms of leave without pay can also affect the amount of your notional defined benefit contributions.
Members of defined benefit superannuation schemes who are also making salary sacrifice contributions need to be aware of their overall superannuation position, including their defined benefit contributions, to avoid unintentionally exceeding their concessional contributions cap ($25,000 for 2017/18) and therefore having to pay additional tax.
Do you need to calculate your defined benefit contributions?
Super Info has developed an online tool to help individuals and financial professionals estimate the amount of notional defined benefit contributions for Australian Government defined benefit schemes. Click here for more.