Superannuation rule changes: Your guide for 2020/21

Insurance within inactive super accounts

Super funds are now required to cancel the insurance cover that goes with your super account if your super account is deemed to be inactive. Under new legislation, super accounts are considered inactive if they have not received any contributions or rollovers for more than 13 months.

Super funds are required to inform fund members they are at risk of having their insurance cancelled and must give them the option to retain their insurance cover even if they are not making regular super contributions.

Closure of inactive super accounts

If you have an inactive super account with a balance of less than $6,000, from 1 July 2019 it will be closed automatically and the balance transferred to the ATO, which will then use data matching technology to combine the low balance amount with one of your active super accounts.

Cap on fees for low balance accounts

Small super accounts with a balance of $6,000 or less at financial year-end will have their super fund fees capped at 3% per year.

Switching funds without exit fees

From 2019/20 exit fees in super funds will be banned, allowing you to switch your super fund without having to pay a penalty or fee.

Work test exemption for first year of retirement

From 1 July 2019, new retirees aged between 65 and 74 will be able to make voluntary contributions into their super account without needing to satisfy the work test. To qualify for the work test exemption, you must have had less than $300,000 in your super account at the end of the previous financial year.

The relaxation of the work test rules only applies once and you cannot make contributions in subsequent financial years without meeting the work test.

Carry-forward rules for concessional (before-tax) contributions starts

From 1 July 2019, super fund members can make catch-up concessional contributions into their super account using their unused concessional contributions cap amounts from previous years. To qualify, you must have a Total Super Balance of less than $500,000 on 30 June of the previous financial year and you must not have used all your $25,000 annual concessional contributions cap in the previous financial year.

Under these rules, you can carry-forward up to five years of unused concessional contributions caps for use in a later financial year.

Age Pension Work Bonus rises and extended to the self-employed

If you are receiving the Age Pension Work Bonus, you will get a lift in your work bonus payments from $250 to $300 per fortnight from 1 July 2019. The work bonus has also been extended to eligible pensioners earning income from active participation in self-employment.

Pension Loans Scheme expanded and interest rate reduced

From 1 July 2019, the eligibility criteria and withdrawal amounts for the Pension Loans Scheme (PLS) will be expanded to make the scheme available to more Australians of Age Pension age. Under the new eligibility rules, you must still qualify for one of the eligible pensions, but you can now have a payment rate of $0 for either of the Age Pension means tests (assets or income) or be receiving the maximum pension rate.

The withdrawal amount per fortnight is increasing from 100% to 150% of the maximum fortnightly pension rate.

From 1 January 2020, the interest rate on PLS loans has been reduced to 4.5% per year compound, down from the previous 5.25% per year compound rate.

Lifetime annuity means test change

Changes to the means test for lifetime retirement income streams or annuities comes into effect from 1 July 2019. Annuity payments are included in the Age Pension income test, but under the new rules only 60% of an annuity’s purchase price is included in the assets test, rather than the previous situation where the full purchase price is included. The assessment rate will reduce to 30% for people aged over 84.

End to anti-detriment deductions

Although anti-detriment payments were banned for any super fund member deaths from 1 July 2017, super funds could still make payments to eligible dependants for members dying prior to this date. From 1 July 2019, no anti-detriment payment deductions are available, regardless of when the member died.

Age Pension age rises to 66

From 1 July 2019, the age at which you qualify for the Age Pension rises to 66, with the eligibility rising six months every two years until it reaches age 67 for everyone on 1 July 2023.

Temporary reduction in super pension minimum drawdowns

In the wake of the COVID-19 pandemic, the government has temporarily reduced super pension minimum drawdown rates for 2019/20. This means from 22 March 2020, the minimum annual payment required to be made from an account-based pension or similar product is reduced by 50%.

Opting out of SG for multiple employers

From 1 January 2020, employees with multiple employers can apply to opt out of receiving the Superannuation Guarantee (SG) from some of their employers. The change helps high income earners avoid going over their concessional contributions cap by allowing them to exempt an employer from making SG contribution payments in quarters where their earnings would exceed the maximum super contributions base (MSCB).

Early release of super

From mid-April 2020, super fund members have been permitted to access up to $10,000 of their super account if they are affected by the adverse economic effects of COVID-19. You can apply to access up to $10,000 before 1 July 2020 if you are unemployed, eligible to receive certain government payments, made redundant, had your working hours reduced by 20% or more, or are a sole trader whose turnover was reduced by at least 20%.

Eligible fund members can apply to the ATO through myGov for a determination they can send to their super fund to receive the payment.

Changes to First Home Super Saver (FHSS) Scheme

From 1 July 2019, the rules governing the First Home Super Saver (FHSS) Scheme were amended to confirm it could only be used for Australian-based property.

Another amendment also confirmed individuals were permitted to sign a property contract up to 14 days prior to requesting release of their FHSS savings. The change was designed to make it easier for people to use the scheme when time is short, for example, when signing a contract at auction.  

Downsizing your home to add to your super

From 1 July 2018, people aged 65 or over are allowed to make contributions into their super account of up to $300,000 ($600,000 for a couple) using the proceeds from the sale of their main residence.

Although downsizer contributions are considered non-concessional (after-tax) contributions, they are not counted towards your normal non-concessional contributions cap ($100,000 in 2020/21) and can be made regardless of whether you meet the requirements of the work test.

Using your super to save a home deposit

From 1 July 2018, any super contributions made into a super account as part of the First Home Super Saver (FHSS) Scheme can be withdrawn and used to help purchase a first home. Under the FHSS Scheme, first homebuyers can make voluntary contributions of up to $15,000 a year into their super account (to a maximum of $30,000 per person or $60,000 for a couple) and later withdraw them (plus the associated earnings) to help purchase a home.

Transfer Balance Account Reporting (TBAR) starts

From 1 July 2018, SMSFs with a member accessing a retirement phase income stream are required to start complying with the TBAR framework and report events affecting these members’ transfer balance cap. The frequency of reporting under the TBAR framework depends on the Total Super Balance of all members of the SMSF.

When it comes to super changes, they don’t get much bigger than the package of new rules that came into effect on 1 July 2017. These new rules represented one of the biggest ever shake-ups of the super system and included:

$1.6 million Transfer Balance Cap established

From 1 July 2017, the amount that can be transferred and held in a super fund member’s tax-free retirement phase account is capped at $1.6 million over a lifetime. Fund members receiving a pension or annuity valued at over this amount were required to transfer the excess back into the accumulation phase or pay additional tax.

Total Superannuation Balance introduced

From 1 July 2017, super accounts now have a Total Super Balance (TSB) calculated each year on 30 June to value a fund member’s assets across the entire super system. The TSB is used to track and limit the amount of savings you can have in the super system. The Total Super Balance consists of all accumulation phase super interests, the balance of your transfer balance account (basically your retirement phase pension), and any rolled over super benefits.

Capped defined benefit income streams introduced

From 1 July 2017, a new category of super pensions was created called capped defined benefit income streams. These pensions have special valuation rules for transfer balance cap and TSB purposes.

Reduced concessional contributions cap

On 1 July 2017, a new annual concessional (before-tax) contributions cap was set at $25,000 for everyone, regardless of their age. Concessional contributions were also defined to include employer contributions (SG contributions, salary sacrifice payments and other amounts paid from pre-tax income such as administration fees and insurance premiums), personal tax-deductible super contributions, notional taxed contributions from defined benefit fund members and unfunded defined benefit contributions.

Division 293 (additional tax on concessional contributions) threshold lowered

From 1 July 2017, the threshold for paying Division 293 tax (an additional surcharge on concessional contributions) was reduced from $300,000 to $250,000. If you are liable for Division 293 tax, you pay an additional 15% on the amount of your concessional contributions over the $250,000 threshold.

Low income super tax offset (LISTO) introduced

The LISTO came into effect on 1 July 2017 as a renamed version of the existing Low Income Superannuation Contribution (LISC). LISTO acts as a refund for the tax paid on concessional contributions you or your employer make into your super account if your taxable income is less than $37,000. This means as a low income earner you pay no tax on your super contributions if you are eligible for LISTO. The ATO determines your eligibility.

Personal super contribution deduction available

From 1 July 2017, anyone aged under 75 can claim a tax deduction for personal contributions they make to super up to their annual $25,000 concessional contributions cap. If you are aged between 65 and 74, you need to meet the requirements of the work test. The $25,000 cap also includes employer and salary sacrifice contributions.

Lower non-concessional contribution cap and new limit

From 1 July 2017, the annual non-concessional (after-tax) contributions cap was set at $100,000, with future increases to be in line with indexation of the concessional (before-tax) contributions cap. In addition, if your Total Super Balance is more than $1.6 million, you are ineligible to make additional non-concessional contributions without paying additional tax.

Anti-detriment payment abolished

From 1 July 2017, anti-detriment payments are banned for any super fund member deaths from that date. Super funds can make anti-detriment payments to eligible dependants up to 30 June 2019 for fund members who died prior to 1 July 2017.

Transition to retirement income streams taxed

From 1 July 2017, investment earnings on assets supporting a transition to retirement (TTR) income stream are no longer tax-free, with a 15% tax applying until retirement.

Co-contributions eligibility expanded

From 1 July 2017, two additional criteria were added to eligibility to receive government co-contribution payments. The new criteria are your non-concessional contributions must not have exceeded the non-concessional contributions cap for that year and your TSB must not have exceeded the general Transfer Balance Cap ($1.6 million in 2019/2020) on 30 June of the previous financial year.

Spouse contributions expanded

From 1 July 2017, the spouse superannuation tax offset was expanded by lifting the income threshold for an eligible receiving spouse to $40,000 per year.

Departing Australia Superannuation Payment (DASP) introduced

From 1 July 2017, super funds are required to apply a tax rate of 65% to the taxable component of a DASP. The tax-free component continues to be tax-free.

Extension of tax exemption for other types of retirement products

From 1 July 2017, the tax exemption on earnings in the retirement phase was extended to products such as deferred retirement products and group self-annuities.