Opinion piece written by John Maroney, CEO, SMSF Association
The standouts are removing the work test for non-concessional contributions for those aged 67-74 and lowering the eligibility age from 65 to 60 for downsizer contributions.
That the budget contained measures specifically designed to assist older Australians to save for retirement should instil greater confidence in self-managed superannuation fund members that their retirement income savings will be sufficient for them to live the remainder of their lives in security and dignity.
In February this year Treasurer Josh Frydenberg, in an address to the Council on the Ageing, responded to the findings of the 600-plus page retirement income review report that he had commissioned in 2019. In a wide-ranging speech that enunciated government policy in this critical area, Frydenberg said: “It is clear that giving more confidence and guidance to retirees to assist them in drawing down on their superannuation savings more effectively is critically important.”
In last week’s budget, he took significant steps towards achieving this goal.
Most notably, the standouts were the decisions to remove the work test for non-concessional contributions for individuals aged 67 to 74 and to lower the eligibility age from 65 to 60 for downsizer contributions. Both these measures will give SMSF members more financial security as they enter the retirement phase of their lives.
This government has never been enamoured with the work test and has chipped away at it in recent budgets – firstly with the removal of the work test for 12 months for recently retired members and, more recently, by removing the work test for members aged 65 and 66.
The work test has had its complexities. There has often been confusion over what constitutes “gainful employment” so that individuals can qualify for the work test, and whether the work test needs to be satisfied before the contribution can be made. So removing this test significantly simplifies the rules for members and for super funds needing to administer those rules.
Subject to SMSFs not exceeding the contribution caps, the removal of the work test will enable individuals aged between 67 and 74 (who in the past have not been able to contribute to super because they are not working) the ability to contribute from July 1, 2022. But while individuals in this age bracket will be able to make voluntary contributions, such as non-concessional contributions and salary sacrifice, they will still need to meet the work test requirements to make personal deductible contributions.
From July 1, 2022, the eligibility age for downsizer contributions on the family home will be lowered from 65 to 60. Another important initiative, it will certainly assist those transitioning to or beginning retirement.
Under the main residence exemption, it means the sale proceeds are either fully or partially exempt, although the downsizer contribution – either $300,000 for an individual or $600,000 for a couple – must be made within 90 days of receiving the money from the sale. Aside from that significant change, all other requirements remain in place, including that the home has been owned by the person or their spouse for at least 10 years.
Another change that received less fanfare was the measure to change the Pensions Loans Scheme to allow access to lump sums of about $12,000 for singles and $18,000 for couples from July 1, 2022. It will allow people to access two lump sum advances in any 12-month period up to 50 per cent of the maximum annual rate of the age pension. In addition, the introduction of a “no negative equity guarantee” means borrowers won’t have to repay more than the market value of their home.
Finally, removing the current $450 a month minimum income threshold means all employees will now receive the Superannuation Guarantee. Expected to take effect on July 1, 2022, it will improve equity in the superannuation system by opening it up to 300,000 individuals of which 63 per cent would be women, according to the retirement income review report.
This latter measure will have little effect on the SMSF sector per se. But as a means of improving public confidence in the equity of the superannuation system, its impact will be significant.
For the SMSF sector, removing the work test for individuals aged 67 to 74 and lowering the eligibility age for downsizer contributions will make it far easier for older Australians to top up their super and live a more dignified life in retirement – particularly important in a low cap environment (downsizer contributions don’t count against the contribution caps) and an ageing population.