Keep in mind the following information is General Advice and is obviously not personalised for your unique needs, objectives or financial situation. Please get in touch with your advisor before taking any action on the below points so they can advise on the appropriateness of this for you.
Changes to Australian superannuation policy can be confusing to say the least, here we give you an overview of recent changes to help make the most of financial opportunities available in the low-tax superannuation environment.
As part of the 2020-21 Federal Budget, these changes were designed to complement earlier changes made in 2020, derived from the economic pain of the pandemic.
Here are the main five parts to the superannuation changes that you need to know:
Changes to super contributions for 65 and over
Changes to superannuation legislation effective from 1st July 2020 now make it easier for people over the age of 65 to make contributions to superannuation.
The new superannuation reform removes the work test for those aged 65 and 66, allowing people to make contributions to their super fund even if they are retired. This change allows individuals of this age bracket to contribute up to $25,000 as a concessional (tax-deductible) amount and/or up-to $100,000 as a non-concessional (after-tax) amount.
Once you turn 67, you must meet the work test or work test exemption criteria to contribute money into superannuation. Under the exemption criteria, your super fund can accept non-concessional contributions for an additional 12-month period from the end of the financial year in which you last met the work test, providing that you are aged 65-74 with a total super balance of less than $300,000 and have not relied on the work test exemption in a previous financial year.
You can continue to make non-concessional contributions if you are 67–74 years old and meet the work test or satisfy the work test exemption criteria.
Bring Forward Contributions
The proposed amendment to the ‘Bring Forward’ contribution rule has been delayed. The proposed change will allow people aged 65 and 66 to make three years’ worth of after-tax non-concessional contributions to their super fund, to a maximum of $300,000 if no additional non-concessional contributions are made in the following two years. Your account balance also determines your eligibility to use the bring-forward rule.
The age limit has now been increased to allow people up to age 75 to receive spouse contributions. Previously spouse contributions could not be made after the receiving spouse had reached 70 years of age. Importantly, if the receiving spouse is aged 67 or over they must satisfy the work test before being able to receive the contribution. The ability to make spouse contributions for a further five years will extend the period a spouse may claim a tax offset for spouse contributions of up to $540 a year.
These changes are in addition to previous changes to help older Australians boost their retirement benefits, including downsizer contributions on the sale of the family home and the temporary 50% reduction to minimum pensions for the 2019-20 and 2020-21 financial years due to COVID-19.
More money into your super
The compulsory employer Super Guarantee (SG) rate is legislated to increase from 1 July 2021 from 9.5% to 10%, as part of the Government’s long-term plan to reach 12% by 1 July 2025. However, the government has hinted at delaying the increase on the basis that the increase could hurt wage growth and standards of living given the effects on the economy of COVID-19 and rising house prices. Any decision to delay the SG rate increase would be made in the May 2021 budget.
Cleaner management of superannuation accounts
As part of the new changes introduced by Treasurer Josh Frydenberg, existing Super accounts will be attached to employees, ensuring that their existing Super is carried over with them when they change jobs. This was introduced to see the elimination of multiple Super accounts being created for the same person, to create a clearer and simplified system.
Currently, many employers create new Super accounts for employees when they are employed. These are the ‘default’ account type, with basic super features and low fees. Through multiple employments, people end up with multiple accounts. This change helps employees avoid ‘losing’ their super as well as saving money on accounts they do not use.
As part of the new Super reform under the 2020-2021 Federal Budget, public super fund administrators will need to be more transparent with account holders about their investment decisions and how they were in the best interests of members. This change will place the spotlight on how some large super funds manage and spend money, including their allocation to advertising expenses.
Name and Shame!
Under the new superannuation fund reform, public super funds will have to pass two tests used for evaluating annual financial performance. This will be introduced to weed out underperforming superfunds and prevent them from taking on new members; ensuring super funds are always acting in the best interests of the account holder and encouraging people to review and consolidate their super accounts. Along with the tests introduced, the My Super portal hosted by the government will publicly rank the Super funds based on fees and investment returns. Testing is due to commence with MySuper products in July 2021 and expand to all super products from July 2022.
These changes are centred around public super fund transparency and aligning contribution ages with the eligibility age for the Age Pension. If you have any questions or seek clarity into the new changes to superannuation funds, and how this may impact you or your business, please contact your Morrows Private Wealth advisor.