The ability to grow superannuation balances later in life has been severely curtailed by the new lower annual concessional contribution cap of $25,000. This change reduces the scope to build up a large super balance unless tax deductible contributions are boosted at a younger age. However, the need to achieve home ownership, fund family expenses and the fact that preservation rules deny access to money in super until at least age 60 make doing this far from attractive.

For many, building up sufficient savings to fund a comfortable retirement will involve working full or part time longer or building up savings outside super. Further, the changes limit the scope to deposit windfalls and investment profits into superannuation by a major reduction in the non-concessional contribution limits.

Once total super account balances including the notional value of defined benefit pensions exceeds $1.6 million, there's no ability to deposit further non-concessional contributions. Defined benefit fund members whose total super exceeds the $1.6 million cap are still allowed to make personal non-concessional member contributions but these will be subject to penalty tax.

There are no restrictions other than complying with the work test on making annual tax-deductible contributions up to $25,000 even when the total balance exceeds $1.6 million. This will be the only way for retirees with large super balances to recontribute excess cash to their fund.

Those with smaller account balances at June 30, 2017 are more fortunate in that by meeting the work test they will be able to deposit up to $100,000 annually in their fund. Even this provision is far less generous than the previous $180,000 annual non-concessional limit.

The $1.6 million cap is also the limit other than for defined benefit pensions on the money that can be invested in tax-free retirement pension accounts. Defined benefit pension recipients aren't limited in the size of the annual pension they can receive but the notional value of their pension (16 times their pension at July 1, 2017) reduces their ability to also receive a tax-free private pension.

The legislation places the onus on taxpayers to comply and to adjust for the changes. Apart from temporary relief for pension account balances exceeding the $1.6 million cap by less than $100,000, the Tax Office will apply penalties to those who breach the new rules.

The first penalty assessments are likely to be issued after July 1, 2018 but the Tax Office has written to most people affected warning them of the need to review their strategies. It will benefit the Tax Office and the recipients of their letters to do so as soon as possible.

Daryl Dixon is the executive chairman of Dixon Advisory. comments@dixon.com.au