Superannuation changes provide contribution opportunity for older Australians
12 May 2021
Among several other rule changes announced in the Federal Budget 2021-22, there will soon be less barriers for eligible older Australians to make voluntary contributions to their superannuation. Here’s a summary of Tuesday night’s announcements with respect to superannuation.
Voluntary contributions to superannuation after retirement age
As it currently stands, in order to make voluntary contributions to their superannuation, Australians aged between 67 and -74 must meet the Work Test, i.e. work at least 40 hours in any 30 consecutive days.
The Federal Budget 2021/2022 proposes to remove the Work Test for Australian’s that make non-concessional (after-tax) contributions or salary sacrifice to Super. The work test will remain in place for personal deductible contributions known as concessional (pre-tax) contributions.
The annual contribution caps will continue to apply and are set to increase to a maximum of $27,500 for concessional contributions and $110,000 for non-concessional contributions from 1 July 2021.
Individuals aged 67-74 will also have access to the non-concessional contribution “bring forward” rule enabling them to bring forward two years of contributions to contribute up to $330,000 in one financial year.
The existing Total Super balance cap of $1.6m (to be increased to $1.7m from 1 July 2021) will continue to apply.
These changes continue with the strategy the Government has adopted in recent years to assist individuals in self-funding their retirement and simplifying their investment portfolio and tax structures.
Examples of where this strategy will benefit individuals are when they receive an inheritance or liquidate a property in later years and wish to invest these monies to produce better returns than cash over the long term, whilst providing steady cashflow in a tax-free environment.
Extending the age to access the downsizer contribution
Currently, individuals aged 65 or over who sell their home may be eligible to make a contribution of up to $300,000 ($600,000 for couples) to their superannuation which does not count towards their contribution caps and is available irrespective of their Total Super balance.
The Federal Budget 2021/2022 proposes that from 1 July 2022 the minimum age to use the downsizer contribution will reduce from age 65 to 60. This again provides individuals the opportunity to maximise the amount of money they can contribute to superannuation to fund their retirement in a tax effective and simplified manner.
Superannuation Guarantee threshold abolished
Under the current superannuation guarantee provisions, there is no requirement for an employer to make superannuation guarantee contributions to employees earning less than $450 in a calendar month.
However, as part of its Budget measures, the Government has announced a plan to scrap the $450 minimum threshold with this measure expected to commence from 1 July 2022.
The Government expects that an additional 300,000 workers will receive additional superannuation guarantee contributions as a result of this, stating in its budget papers, “This measure will improve equity in the superannuation system by expanding the superannuation guarantee coverage for cohorts with lower incomes.”
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