The focus of this year’s Federal Budget (announced on 11 May 2021) is on initiatives designed to maintain and grow Australia’s post-pandemic economic recovery, which has been better than expected.
While a number of superannuation and retirement measures were announced, most of these are changes or adjustments to existing measures.
It’s important to remember that the budget measures outlined need to be legislated before they come into effect. The same applies to the package of measures announced in last year’s October budget which remains in Parliament and is still subject to debate.
SNAPSHOT OF CHANGES
- Higher withdrawal limit for First Home Super Saver Scheme
- Removal of super contribution “work test” for those aged between 67 and 74
- Lower age threshold for super downsizer scheme
- Removal of $450 monthly income threshold for super contributions
- Transfer of unclaimed super to KiwiSaver accounts
- Legacy Product Conversions
- Pension Loan Scheme – No negative equity guarantee
In a change to an existing measure, the maximum withdrawal threshold for the existing First Home Super Saver Scheme will increase to $50,000, from $30,000. This scheme does not allow first home buyers to withdraw any of their compulsory super savings, only voluntary savings.
The budget will also abolish the work test. The work test limits people aged between 67 and 74 from receiving super contributions. To meet the work test a person aged 67 to 74 must be gainfully employed for at least 40 hours over 30 consecutive days during the financial year.
In another change to an existing measure, retirees who downsize their family home will be able to contribute $300,000 to superannuation ($600,000 for couples) at age 60, down from 65.
The government will remove the $450 minimum monthly income threshold. This minimum threshold prevents many low paid women, in particular, from receiving compulsory super contributions.
New threshold for First Home Super Saver Scheme
The Government proposes to increase to $50,000 the maximum amount of voluntary contributions aspiring home buyers can take under the First Home Super Saver Scheme.
This scheme allows people to make voluntary contributions to superannuation to save for their first home. At present these contributions are capped at $15,000 a year and $30,000 in total.
Under the proposed changes, contributions into a super fund will be allowed by salary sacrifice up to a maximum total of $50,000. For a couple, both individuals will be able to utilise their caps up to a combined maximum of $100,000.
This scheme relates to voluntary contributions only. First home buyers cannot withdraw any of their compulsory super – that is, super contributions made on their behalf by their employer – under the scheme.
Proposed start date: 1 July 2022
Work test abolished for those aged between 67 and 74 years
The budget will also abolish the work test. The work test requires those aged 67 and 74 to be gainfully employed for at least 40 hours over 30 consecutive days during the financial year before concessional or non-concessional superannuation contributions can be made.
This will allow individuals aged 67 to 74 years (inclusive) to:
- make or receive non-concessional (including under the bring-forward rule), or
- make salary sacrifice superannuation contributions
without meeting the work test, subject to existing contribution caps. Individuals aged 67 to 74 years will still have to meet the work test to make personal deductible contributions.
The existing $1.6million cap on lifetime superannuation contributions will continue to apply (increasing to $1.7million from 1 July 2021). The annual concessional and non-concessional caps will also continue to apply.
Proposed start date :1 July 2022
New age threshold for downsizers
In another change to an existing measure, retirees who downsize their family home will be able to contribute $300,000 to superannuation ($600,000 for couples) at age 60, down from 65. This contribution is classified as a non-concessional (post-tax) contribution and is allowed in addition to existing super rules and caps including the total super balance cap of $1.6 million (to rise to $1.7 million on 1 July) . The measure is exempt from the work test. However, it is not exempt from the $1.6 million (also rising to $1.7 million on 1 July) transfer balance cap. You can read more about the Transfer Balance Cap on our blog post. The Transfer Balance Cap limits the amount of money you can put into a pension phase account where the earnings are tax free.
Proposed start date: 1 July 2022
Removal of $450 monthly income threshold
The $450 monthly threshold prevents an estimated 300,000 low paid workers, 63% of whom are female, from receiving mandatory employer super contributions. Removing this threshold will ensure this cohort of workers are paid super.
Proposed start date: 1 July 2022
Transfer of superannuation to the KiwiSaver Scheme
The Government will provide $11.0 million over four years from 2021-22 (and $1.0 million per year ongoing) to the Australian Taxation Office to administer the transfer of unclaimed superannuation money directly to KiwiSaver accounts.
KiwiSaver accounts are the New Zealand equivalent of Australian superannuation funds.
Proposed start date: 1 July 2021
Legacy product conversions
A two-year period will be provided for conversion of market-linked, life-expectancy and lifetime pension and annuity products. Importantly, it will not be compulsory for individuals to take part.
Retirees with these products who choose to will be able completely exit these products. They can do this by fully commuting the product and transferring the underlying capital, including any reserves, back into a superannuation fund account in the accumulation phase. Then they have a few options. They can decide to:
- commence a new retirement product,
- take a lump sum benefit, or
- retain the funds in that account.
Any commuted reserves will not be counted towards an individual’s concessional contribution cap and will not trigger excess contributions. Instead, they will be taxed as an assessable contribution of the fund (with a 15 per cent tax rate). This recognises the prior concessional tax treatment received when the reserve was accumulated and held to pay a pension.
Products covered:
- Market-linked, life-expectancy and lifetime products which were first commenced prior to 20 September 2007 from any provider, including self-managed superannuation funds (SMSFs).
Products NOT covered
- Flexi-pension products offered by any provider, and lifetime products offered by a large APRA-regulated defined benefit schemes or public sector defined benefit schemes.
Proposed start date: 1 July 2022
Pension Loans Scheme
The flexibility of the Pension Loans Scheme is being improved by:
- providing access to advance payments through allowing participants to access up to 26 fortnights’ worth of top-up payments as a lump sum,
- introducing a No Negative Equity Guarantee.
This will provide immediate access to lump sums of around $12,000 for singles, and $18,000 for couples.
No Negative Equity Guarantee will mean that borrowers under the PLS, or their estate, will not owe more than the market value of their property, in the rare circumstances where their accrued PLS debt exceeds their property value. This brings the PLS in line with private sector reverse mortgages
Proposed start date: 1 July 2022
Previous Budget measures scheduled to come into effect on 1 July 2021
The Your Future Your Super measures proposed in last October’s budget – which include a measure that will staple everyone to their current superannuation fund and apply performance testing to many funds – are scheduled to come into effect on 1 July. However, as the legislation is still before Parliament, the final scope of the proposed reforms and their implementation date is not yet known.