Budget Bulletin 2021-22
This year’s Federal Budget includes a number of superannuation and retirement initiatives that are mostly either changes or adjustments to existing measures.
Significant changes include the removal of the $450 monthly income threshold and an increase in the threshold to the First Home Super Saver Scheme.
The main package, more flexibility for older Australians, offers greater options when it comes to contributing to superannuation and planning for retirement.
Super contribution work test abolished: Abolition of the work test (from 1 July 2022) which requires those aged between 67 and 74 to be gainfully employed for at least 40 hours over 30 consecutive days during the financial year before concessional or non-concessional superannuation contributions can be made. Individuals aged 67 to 74 years will still have to meet the work test to make personal deductible contributions.
The existing $1.6 million cap on lifetime superannuation contributions will continue to apply (increasing to $1.7 million from 1 July 2021). The annual concessional and non-concessional caps will also continue to apply.
Lower age threshold for downsizers: From 1 July 2022, retirees who downsize their family home will be able to contribute $300,000 to superannuation ($600,000 for couples) at age 60, down from 65.
Removal of $450 monthly income threshold: From 1 July 2022, the Government will remove the current $450 per month minimum income threshold under which employees do not have to be paid the super guarantee by their employer. This measure will improve equity in the superannuation system by expanding the super guarantee coverage for workers on lower incomes.
First Home Super Saver Scheme: In a change to an existing measure, from 1 July 2022 the maximum withdrawal threshold for the existing First Home Super Saver Scheme will be increased to $50,000, from $30,000. Currently, individuals can apply to have a maximum of $15,000 of their voluntary contributions from any one financial year included in their eligible contributions, up to a total of $30,000 contributions across all years. This will increase to $50,000. For couples, both individuals will be able to utilise their caps up to a maximum of $100,000.
This scheme does not allow first home buyers to withdraw any of their compulsory super savings, only voluntary savings qualify for release.
Improving the Pension Loans Scheme: Allowing participants to access up to two lump sum advances in any 12-month period, up to a total value of 50 per cent of the maximum annual rate of the Age Pension. Plus, the introduction of a ‘No Negative Equity Guarantee’ so borrowers will not have to repay more than the market value of their property.
Rationalising legacy products: The Government will provide $2.5 million over two years from 2021-22 to establish an industry working group to develop and consult on the design of a streamlined mechanism to facilitate the transfer of policyholders from closed life insurance products and managed investment scheme products to new products.
Stronger Consumer Outcomes: The Government will provide $11.2 million over four years from 2021-22 (and $3.1 million per year ongoing) to support stronger consumer outcomes for members of super funds by providing:
- $9.6 million for the Australian Prudential Regulation Authority (APRA) to supervise and enforce increased transparency and accountability measures as part of the Government’s Your Future, Your Super reform
- $1.6 million to Super Consumers Australia to support stronger consumer outcomes on behalf of super fund members.
The funding for this initiative will partially be met through an increase in levies on regulated financial institutions.
Please note, the proposed Budget measures still need to be legislated before they come into effect.
- More than 10 million low and middle-income earners are expected to benefit from the extended tax cut costing the government $7.8 billion, which will see individuals benefit by up to $1,080 or $2,160 for couples.
- Economic growth tipped to be 1.25 per cent in 2020-21 and to reach 4.25 per cent in 2021-22 before falling to 2.5 per cent the following year.
- The underlying cash balance for the government’s Budget is expected to be a deficit of $161 billion for 2020/21, $52.7 billion lower than what was expected six months ago.
- Net debt is expected to peak at $980.6 billion in 2024-25, or 40.9 per cent of GDP.
- Unemployment is forecast to fall below 5 per cent by late 2022 and will reach 4.75 per cent in 2022-23.
Information for this document was sourced from the Federal Budget papers, the Association of Superannuation Funds of Australia and the Australian Institute of Superannuation Trustees.