Currently, employers do not need to make Superannuation Guarantee contributions on behalf of an employee who earns less than the $450 per month income threshold.
Superannuation guarantee to increase to 10% from 1 July 2021
The Superannuation Guarantee rate is set to increase from 9.5% to 10% from 1 July 2021.
There were no announced changes to further defer the increase of the Superannuation Guarantee rate for compulsory employer superannuation contributions.
The rate is still scheduled to progressively increase to 12% by 1 July 2025.
Removal of the Work Test
From 1 July 2022, the Work Test is to be repealed for individuals between 67 and 74 years of age (inclusive), allowing these individuals to make the following contributions to superannuation:
- Non-concessional contributions
- Salary sacrifice contributions
Individuals between the ages of 67 to 74 years will still be required to meet the Work Test to make personal deductible (concessional) contributions.
Based on current rules, an individual who is 67 to 74 years of age can only make voluntary superannuation contributions (concessional and non-concessional) if the individual has been gainfully employed for at least 40 hours over a 30-day period in the applicable financial year.
Removal of the Work Test presents a planning opportunity for older Australians to continue contributing to superannuation and to build their retirement savings with less red tape.
Reducing the minimum age for Downsizer Contributions
The eligible age from which an individual can make a Downsizer Contribution to superannuation is to reduce from 65 to 60 years of age, with effect from 1 July 2022.
The Downsizer Contribution was first introduced from 1 July 2018 to allow an eligible individual to choose to make a one-off after-tax contribution to their superannuation fund of up to $300,000 per person from the proceeds of selling their home. The Downsizer Contribution does not count towards an individual’s non-concessional contribution cap and can be made even if the individual has a total superannuation balance of more than $1.6M (soon to be $1.7M due to indexation of the cap from 1 July 2021).
This measure presents a unique opportunity for individuals who are 60 years or older to make a once-off larger superannuation contribution to boost their retirement savings that would ordinarily be limited due to contributions caps.
First Home Super Saver Scheme
The maximum releasable amount of voluntary concessional and non-concessional contributions under the First Home Super Saver Scheme (FHSSS) is to increase from $30,000 to $50,000 from 1 July 2022.
The FHSSS was first introduced from 1 July 2017 to allow individuals the ability to save money for their first home using their superannuation fund and therefore utilise the concessional tax treatment of superannuation.
The announced Budget measures also propose several technical amendments (to retrospectively take effect from 1 July 2018) to improve the ability for first home buyers to access the FHSSS and to streamline the application process.
Legacy retirement product conversions
For a two-year period, individuals who hold certain legacy retirement products (including market-linked, life-expectancy and lifetime pension and annuity products) will be allowed to convert them to more contemporary (and wider used) income streams.
This is an important change, albeit one that will only be relevant for a subset of people.
An eligible individual who chooses to convert such a product can fully commute the balance and transfer the underlying capital (including any reserves) into a superannuation fund account in the accumulation phase. The individual can then choose to commence either a new retirement product, take a lump sum benefit or retain the funds in the accumulation account (or so it would seem, take a combination of these).
Reserve amounts will not count towards the individual’s concessional contribution cap but will be taxed as an assessable contribution in the superannuation fund (at 15%). However, existing transfer balance cap rules and valuation methods will continue to apply.
Market linked, life-expectancy and lifetime products which were first commenced prior to 20 September 2007 from any superannuation provider (including SMSFs) are eligible. However, lifetime products offered by large APRA regulated defined benefit schemes or public sector defined benefit schemes are not eligible for conversion.
The current (generally concessional) treatment of such legacy pensions for social security and taxation purposes will not be grandfathered. Accordingly, a detailed analysis of the advantages and disadvantages should be undertaken (and professional advice sought from a licensed financial advisor or superannuation specialist) before any conversion is undertaken.
It is hoped that prescriptive guidance surrounding all relevant issues will be contained in the legislation.
These legacy pensions have long been of concern to pension holders and their advisors as they are typically inflexible, restrict access to capital, and have presented ongoing uncertainty as to the appropriate planning and treatment on death of the pensioner.
Relaxing residency requirements for SMSFs
The central management and control test safe harbour period regarding the residency of self-managed superannuation funds (SMSFs) and small APRA-regulated funds (SAFs) is to be extended from two to five years, removing the active member test.
This extension aims to allow individual members of SMSFs and SAFs to continue contributing to their superannuation fund whilst temporarily overseas (such as undertaking overseas work and education opportunities).
The Government expects to have this legislated with effect from 1 July 2022.
Early release for victims of family and domestic violence
The Government has confirmed it will not proceed with extending the early release of superannuation provisions to victims of family and domestic violence.
This was proposed in 2018 but had not proceeded to be legislated.
The Government has confirmed they will not proceed with extending the early release of superannuation provisions to victims of family and domestic violence.
This was proposed in 2018 but had not proceeded to be legislated.
