With inflationary pressure greater than most Aussies have seen since the 1990’s, financial commentators have witnessed several changes in the behaviour of consumers, investors and SMSF trustees. A superannuation member’s investment strategy will change to suit the changing environments across their lifestyle. One strategy that may be more highly executed during this period of high inflationary pressure is downsizer contributions.
We take a look at what the downsizer contribution strategy is and why there may be a rise in these contributions being made throughout 2023.
What is a downsizer contribution?
In essence, the purpose of the downsizing rules is to enable older super fund members to sell their existing family home, purchase a smaller home and contribute the residual proceeds into their superannuation accounts.
Effective from 1st January 2023, updated regulations, changing the eligibility criteria by reducing the minimum age requirement, granting individuals aged above the age of 55 the ability to make downsizer contributions. Initially, the minimum age was set at 65, but it has gradually been decreased to 55. There is currently no upper age limit or maximum age limit to make a downsizer contribution.
What may prompt SMSF members to make a downsizer contribution in the current environment?
With Australia now identified to be in a ‘cost of living crisis‘ and with indexation of the general transfer balance cap going up to $1.9million as of July 1 2023 and house prices remaining strong, it is possible that some SMSF members may look to downsize their home (particularly if they still hold a mortgage over the property and are experiencing pressure in raised interest rates) and then utilise the downsizer contribution strategy to invest the sale proceeds towards their retirement savings.
There is also the potential that with tighter budgets, there may not be the cash flow in household budgets to be able to continue (or implement) other contribution strategies, which could lead some super fund members to utilise the downsizer contribution strategy.
It is prudent to seek professional advice before implementing a downsizer contribution strategy
Before making downsizer contributions, it is vital to access professional advice to understand the benefits and risks of implementing the strategy. Every super fund member’s personal objectives, financial situation, investment time frame and total superannuation balance will be considered by a financial adviser before recommending a downsizer contribution strategy.
Similarly, investing in an investment property within your self-managed superannuation fund also requires professional guidance. To understand the best lending structure for your SMSF, contact the team at SMSF Loan Experts.