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From 1 July 2022, a raft of changes to the super rules offer opportunities for older Australians to boost their retirement savings.
These changes were legislated under the Treasury Laws Amendment (Enhancing Superannuation Outcomes for Australians and Helping Australian Businesses Invest) Act 2022, which received Royal Assent on 22 February 2022.
Some of the key changes for super members from July 2022 are:
- Work test changes – No work test required for receiving any type of super contribution for anyone under the age of 75, except when making personal tax-deductible contributions for people aged 67 to 75.
- Extension of the non-concessional contribution (NCC) bring-forward rule – Anyone aged between 67 and 75 can make non-concessional contributions using the bring-forward rule.
- Reduction in the downsizer contributions age eligibility – Instead of being restricted to people above age 65, you can now make these contributions from age 60 onwards.
- Removal of the super guarantee (SG) threshold – The requirement for employees to earn $450 per month before receiving super guarantee payments from their employer has been scrapped.
- First Home Saver Super Scheme – Instead of $30,000, people can now release up to $50,000 from their super account for a first home deposit.
In this article, we will focus on the opportunities offered by first three changes.
1. Work test changes
Until 1 July 2022, Australians aged 67 to 74 needed to meet the work test conditions to receive super contributions. This required them to working for at least 40 hours in a consecutive 30-day period in a financial year or be eligible for the work test exemption.
From 1 July 2022, this work test requirement will be removed, so anyone under age 75 with cash to spare can make contributions to their super account (other than personal tax-deductible concessional contributions).
This means you can potentially make non-concessional (after tax) contributions until you turn 75 (or no later than 28 days after the month you turn 75). It also opens up potential new strategies when combined with the bring-forward rule (below).
2. Extension of the non-concessional contributions bring-forward rule
Using a combination of the work test removal and extension of non-concessional contributions bring-forward rule changes for individuals aged between 67 to 75, these are some potential strategies that become available:
- You could withdraw a lump sum from your super and recontribute it to your spouse’s account to maximise your combined Transfer Balance Account (TBA), or to manage your Total Super Balance (TSB).
- Instead of making a downsizer contribution, you could trigger the non-concessional contribution bring-forward rule when the family home is sold. This will let you preserve the downsizer contribution for a future sale of home, as a downsizer contribution can only be made once.
- If your home sale proceeds exceed the downsizer contribution limits, you can make non-concessional contributions to maximise your total super contributions.
- You might consider transferring wealth you hold outside super – such shares, investment properties or an inheritance – into super to take advantage of a pension account’s tax-free environment (keeping in mind that the transfer balance cap rules still apply).
- Implement recontribution strategies to manage death benefit tax to your non-dependent children.
3. Downsizer contributions from age 60
From 1 July 2022, you can make a downsizer contribution from age 60, down from age 65 previously. Other downsizer contribution conditions remain unchanged.
Some of the key advantages this new change brings:
- You now have the opportunity to downsize earlier than was previously possible and use the proceeds to boost your super.
- As downsizer contributions are not treated as non-concessional contributions, you can increase your super balance without impacting your non-concessional contributions cap.
- You can use a combination of downsizer contributions and non-concessional contributions to maximise the amount of your home sale proceeds that can be transferred into super.
- You can potentially implement a recontribution strategy of up to $630,000 (or $1,260,000 for a couple) by using combination of downsizer contribution and non-concessional contributions under the bring-forward rule if eligible.
- If you have reached Age Pension age and have a younger spouse who has not, you can potentially increase your pension entitlements by transferring wealth into your spouse’s super. This is because super in the accumulation phase is quarantined from Centrelink assessments.
While these changes can positively impact your financial situation, it is important to consider the other rules and conditions that remain unchanged. For example, while it would be great to transfer more of your wealth into super and enjoy tax-free retirement income, the transfer balance cap of $1.7 million still applies.
To find out which strategies you may be eligible for, or the strategies that make the most of your personal situation, it is worth seeking independent financial advice.