Superannuation 2021

Superannuation News 30 June 2021

The economic recovery in Australia after the COVID-19 pandemic has exceeded all expectations and there are several changes in the superannuation space aimed at boosting retirement incomes.  Many of the new and proposed rules outlined below are focused on expanding contribution opportunities and assisting those in part-time or casual employment.

Please contact us if you have any concerns or need advice about your situation. Regards… Vic, Andrew & John.

Key Changes Applying from 1 July 2021

Increase in Super Guarantee

The Superannuation Guarantee, the compulsory contribution made by employers, is increasing from 9.5% to 10%. It is legislated to rise by 0.5% each year until 1 July 2025 when it will reach 12%.

Increase in Contribution Caps

  • Concessional (tax-deductible) contribution maximum limit increases from $25,000 to $27,500 per year. These contributions are taxed at 15% when paid into the fund
  • Non-concessional (after-tax, non-tax-deductible) contribution limit is increasing from $100,000 to $110,000 per year. Non-concessional contributions (NCC’s) are not taxed when received by the fund
  • Activating the ‘bring-forward arrangement’ allows contributions of up to three years’ worth of NCCs in a single year. This maximum increases alongside the NCC from $300,000 to $330,000. The 3 year bring-forward maximum contribution is based on the non-concessional contributions cap at the time the bring-forward is triggered. Triggering it before July 1 will exclude you from accessing the increased cap

Increase in Total Super Balance Cap

The ability to add to super with non-concessional contributions (NCC’s) is limited by a person’s total super balance (TSB). After the super balance exceeds the TSB cap, no more NCCs can be made.  The TSB cap is increasing from $1.6 million to $1.7 million on 1 July 2021. Concessional contributions are not affected by the TSB.

Increase in Transfer Balance Cap

The amount a person can transfer from the accumulation phase to a retirement phase pension is called the transfer balance cap (TBC) and is also going up to $1.7 million for people starting a new pension.

Investment returns in the pension phase are generally tax free while they are taxed at 15% in the accumulation phase.

Anyone with a transfer balance account of $1.6 million any time since 1 July 2017 is not eligible for the $100,000 increase. Those with transfer balance accounts below the previous TBC cap will receive a portion of the increase. This calculation becomes complicated and most people affected should obtain financial advice.  Those who have yet to start a retirement phase income stream before 1 July 2021 will receive the full increase.  People with more than one fund, such as an SMSF, a retail fund or an industry fund, need to know that all balances are included in the transfer balance cap.

Age Minimum Pension 2021-2022
Under 65 2 %
65-74 2.5 %
75- 79 3 %
80-84 3.5 %
85- 89 4.5 %
90-94 5.5 %
Over 94 7%

Minimum Pension Drawdown Rates

The minimum pension drawdown rate has been reduced by 50% for 2021-2022. This reduction was initially introduced as a response to the COVID-19 pandemic to offer flexibility and has been further extended to 30 June 2022. As long as an amount equal to or greater than the minimum pension has been drawn out of your fund it will receive concessional tax treatment.  The minimum amount is based on the pension balance at the start of the financial year or when the pension commences if during the year.

Key Proposed Changes to Super for July 2022

Removal of $450 Monthly Income Threshold

The Government will remove the $450 minimum monthly income threshold, meaning all workers, regardless of how much they earn, will be entitled to receive employer super payments.

Higher Withdrawal Limit for the First Home Super Saver Scheme

The maximum withdrawal from the First Home Super Saver Scheme (FHSSS) will increase from $30,000 to $50,000.

This scheme allows people to make voluntary contributions to superannuation to save for their first home. The current caps on these contributions are $15,000 a year and $30,000 in total.

Under the proposed changes, voluntary contributions into a super fund will be allowed by a post-tax contribution or through salary sacrificing, up to a maximum of $50,000 in total.

Abolishing the Work Test for those Aged Between 67 and 74 years

The current work test requires a person to be employed for at least 40 hours in a consecutive 30-day period during the financial year before any super contributions can be accepted – Concessional or Non-Concessional.

Under the proposed changes, the existing work test will be abolished on 1 July 2022, however, the work test will continue to apply where an application to make personal deductible contributions is made.

New Age Threshold for Downsizers

The eligibility for downsizer contributions will be lowered from age 65 to 60, allowing retirees to contribute up to $300,000 to their super following the sale of their home. Couples may be eligible to contribute up to $300,000 each.

Other conditions must be met such as:

  • You or your spouse owned the home for at least 10 years
  • You make the contributions within 90 days of selling your home
  • You complete a downsizer contribution form

Please note that these are proposed changes only and have not been legislated at the time of producing this newsletter.

Carry Forward Contributions

Carry forward contributions are not a new type of contribution, they are simply new rules that allow people to use any of their unused concessional contributions cap on a rolling basis for five years.

This means if you don’t use the full amount of your concessional contribution cap in a year starting from 2018-19, you can carry forward the unused amount and take advantage of it up to five years later provided your total super balance at the start of the year is below $500,000.

DISCLAIMER: This newsletter is not advice. Clients should not act solely based on the material contained in this newsletter. Items listed are general comments only and do not constitute or convey advice.  Also, changes in legislation may occur quickly. We, therefore, recommend that our formal advice be sought before acting in any of the areas.