Opinion piece written by John Maroney, CEO, SMSF Association
First published in Financial Review on 02 December 2021. Licensed by Copyright Agency.
Legislation before Parliament will allow substantial top ups to retirement savings for those aged 67-74.
Self-managed super funds are set to become key beneficiaries of legislation before Parliament that will introduce more flexible superannuation contribution rules for older Australians.
The bill – titled the Treasury Laws Amendment (Enhancing superannuation outcomes for Australians and helping Australian businesses invest) Bill 2021 – is the legislative outcome of the package of superannuation reforms announced in the 2021 Federal budget that is designed to give older Australians, including self-funded retirees, greater flexibility to contribute to their superannuation and access their housing wealth.
It recognises that Australians retiring today did not benefit from compulsory superannuation (it was introduced in 1992) for about two decades of their working lives, as well as the fact many have acquired savings outside superannuation.
Regarding the work test, it means that if the legislation becomes law, from July 1, 2022, individuals aged 67-74 will no longer need to meet the work test when making non-concessional superannuation contributions.
These individuals will also be able to access the non-concessional bring-forward arrangement (subject to meeting the relevant eligibility criteria). It means this age group will have access to the same non-concessional bring-forward arrangements that apply to individuals under 67.
For example, under the current thresholds, if your total super balance on June 30 of the previous financial year is less than $1.48 million, you can make a non-concessional contribution equal to $330,000 without breaching the contribution caps. But you will then not be able to make any further non-concessional contributions for the remainder of that financial year or the next two financial years.
If your total super balance on June 30 of the previous financial year is equal to or exceeds $1.48 million but is less than $1.59 million, you can make a non-concessional contribution equal to $220,000. But you will then not be able to make any further non-concessional contributions for the remainder of that financial year or the next financial year.
If your total super balance on June 30 of the previous financial year is equal to or exceeds $1.59 million but is less than $1.7 million, the maximum non-concessional contribution you can make in a financial year is $110,000.
If your total super balance on June 30 of the previous financial year is $1.7 million or more, you will not be able to make any non-concessional contributions without breaching the contribution caps.
Access to concessional personal deductible contributions for individuals aged 67-74 will remain subject to meeting the work test.
These changes may be even more flexible than first thought, with the legislation allowing someone aged 74 with a total super balance of less than $1.48 million being able to contribute the full bring-forward amount of $330,000 in one hit.
It was initially thought someone approaching age 74 would not be able to bring forward two full years of non-concessional contributions as this would essentially mean they would be accessing a period beyond age 74 when, under the contribution rules, non-concessional contributions can no longer be made. But the legislation before Parliament does not include such a restriction.
Extending access to downsizer contributions by lowering the minimum age from 65 to 60 will also improve the flexibility for Australians to contribute to their super savings and may encourage people to downsize sooner and increase the supply of family homes.
Scheduled to take effect on July 1, 2022, it will allow SMSF members nearing retirement to make a one-off, post-tax contribution of up to $300,000 per person (or $600,000 per couple) when they sell their family home.
Downsizer contributions, which don’t count towards the concessional and non-concessional contributions caps, can be made after the sale of a person’s principal place of residence provided it has been held for a minimum of 10 years.
People with balances over the transfer balance cap (which is $1.7 million from July 1, 2021) are also able to make a downsizer contribution. But the downsizer amount will count towards that cap when savings are converted to the retirement phase.
With this bill listed to be debated in Parliament during the final 2021 sitting, it is possible this legislation could be passed this side of Christmas – an early Christmas present for many.