By Lisa Judge, Active Super Head of Financial Planning
There are some significant changes to superannuation which should benefit a cross-section of the community, from those just starting out in their careers through to retirees.
Some of the previously announced federal government measures may offer tax relief and, coupled with the right strategies, could have a positive impact on retirement savings.
Many of the super reforms were announced in 2021 but come into effect 1 July 2022.*
The superannuation guarantee (SG) contribution that employers are legislated to pay into super is going to be 10.5 percent of a worker’s ordinary time earnings, up from the current 10 percent.
The SG will increase by 0.5 percentage points each year until it hits 12 percent in 2025. The contribution is paid into individual super funds by employers to help raise retirement savings.
Removal of $450 threshold
Low-income earners and women will be the main beneficiaries after the minimum salary threshold for receiving superannuation was abolished.
From July, workers earning less than $450 a month before tax will be entitled to receive the compulsory SG payment from their employers.
This is expected to benefit an estimated 300,000 low-income earners, about 63 percent of whom are believed to be women. It should lead to improved retirement outcomes for women, low-income earners and people doing part-time work.
At this stage, other eligibility requirements to receive the SG will still apply such as needing to work more than 30 hours per week if you’re under 18.
First Home Super Saver Scheme
The maximum amount of voluntary contributions made to super that can be released under the First Home Super Saver (FHSS) scheme will increase to $50,000 from $30,000.
Participants must be first-home buyers and have lived in the home for at least six months within 12 months of buying. The scheme can also reduce taxable income.
Downsizer Contribution Eligibility
For those who have found their principal residence too big to handle, as well as those dreaming of a sea change, tree change or apartment change, downsizer contributions may be of benefit.
Under the initiative, which suits retirees or pre-retirees, eligible people can use the proceeds from the sale of the family home in Australia to boost their super.
The eligibility age for downsizers to top up their super was already set to be reduced to 60 from 65, but as part of the election promises the age has been lowered further to 55. This means that some people could even see their retirement come into fruition earlier than previously planned.
Contributions max out at $300,000 for a single person and $600,000 for a couple.
The downsizer policy allows individuals to use the proceeds from selling the family home to boost their super. There are some rules that apply, including but not limited to:
- You must have owned the home for at least 10 years prior to the sale
- The property to be sold must be located in Australia and cannot be a mobile home
- The contribution must be made within 90 days of receiving the money from the sale
- The contribution doesn’t count towards the non-concessional cap.
Work Test Scrapped
Those aged 67 to 74 will no longer need to meet the work test for salary-sacrifice or personal after-tax contributions.
People have been working longer, so it makes sense for the contribution age limits to also change. Currently, only people under 67 can contribute to super without satisfying a work test (though people aged 67 to 69 can make SG and downsizer contributions without the work test).
As part of the reforms, the upper age limit will increase to allow people under 75 to contribute to super without satisfying a work test. This is a positive step as some people who are still active have been prevented from adding to their super for up to 10 years.
From July, people will be able to contribute extra savings or even funds received from an inheritance into super. For those who don’t have extra funds to add to super, it may be a way to minimise potential tax to their estate.
It’s important to know that there are caps that apply to contributions and limits to the total amount you have in super and pension phase.
Individuals may still need to meet the work test to claim a personal superannuation contribution deduction.
The bring-forward rule means that if contributions are made above the annual non-concessional contributions cap, people may be eligible to automatically gain access to two future year caps, meaning their total after-tax contributions in a single financial year can be up to three times the annual cap. This could potentially allow members to make additional non-concessional contributions without having to pay any extra tax.
Currently, individuals have to be under 67 to be eligible, but the age cap is being raised to under 75 from 1 July 2022.
There was only one industry-wide superannuation measure in the 2022-23 budget and that related to the extension of the existing 50 percent reduction on minimum drawdown rates for account-based pensions and similar products for a further year until 30 June 2023.
The minimum drawdown requirements determine the minimum amount of a pension that a retiree must draw from their superannuation each year. This change may be good for retirees looking for more flexibility to manage their income as it could help them avoid selling investment assets in order to satisfy the minimum drawdown requirements.
Webinar - Changes Explained
If you would like to learn more about these upcoming reforms, you can watch a webinar that explains the changes to help you make the most of your super.
If you want to set yourself up for a better financial future it can pay to talk to a financial planner. The team at Active Super can help you plan for your future at any stage of life with valuable advice.
Feel free to contact us on 1300 547 873 or make an appointment to see how we can help you live your best life.^
Lisa Judge is the Head of Financial Planning at Active Super, leading a team of advisers across metropolitan and regional NSW. Lisa has over 22 years’ experience in the superannuation industry with 16 years specialising in financial planning. She holds a Bachelor of Commerce, a Graduate Diploma and a Masters in Financial Planning, and is a Certified Financial Planner.
^Please note, fees may apply. Whether or not a fee applies will depend upon the scope of the financial advice you require. Your financial planner will discuss any fee payable when meeting with you and, if a fee is applicable, will advise you of the fee should you decide to proceed with obtaining the advice.
*Eligibility criteria applies to all reforms. Talk to us or visit the ATO website to find out more.
Any advice in this article is general in nature and has been issued by LGSS Pty Limited (ABN 68 078 003 497) (AFSL 383558), as Trustee for Local Government Super (ABN 28 901 371 321)(‘Active Super’). The advice does not take into account your personal objectives, financial situation or needs. Before acting on it, you should consider the appropriateness of it having regard to these matters. If you would like advice that takes into account your personal circumstances, please contact a financial adviser.