Superannuation is becoming more flexible from 1 July 2022, with a raft of beneficial changes coming, which will impact most Australians, and particularly those who are pre-retirement or already retired.
Our advisers have put together a snapshot of these super-sized changes:
Advice around your superannuation has likely changed
The most important thing to note is that if you have previously been advised that you were too old to contribute to superannuation, this may now have changed. The new rules around superannuation offer much greater flexibility, including with regards to age limits.
Here is a summary of the key changes – It is important to flag that there are many planning opportunities arising for clients as a result of these, which may require a rethink of your superannuation strategies.
- Australians aged over 67 can now make post-tax contributions, without needing to meet any work test, from 1 July 2022
- ‘Downsizer’ contributions (of up to $300,000) can now be made earlier, from the age of 60
- ‘Bring forward’ rules, which allow up to 3 years worth of super contributions to be made in 1 year, has been increased from only 67 in recent years, to 75 from 1 July
- There is an increased ability to withdraw and recontribute superannuation to reduce future tax liabilities for beneficiaries of your estate
If you are aged 65 years or older, here are some things it may be worth you investigating to ensure you capitalise on these beneficial changes:
- Review this year’s contribution plans to make sure they align with future contribution caps
- Ensure your contribution plans are on track for the current year, before making changes for the 2022/23 financial year
- Review whether there is a better time to sell or move assets, such as property with a capital gain, to maximise your wealth inside a low or no tax environment
- Consider whether it may be beneficial to set up regular salary sacrifice contributions instead of yearly personal deductible contributions
- Review whether you may be able to get a big super boost earlier from making a downsizer contribution, and managing how and when to use this, along with the other yearly caps available
As always, though, the devil is in the detail, so if you do want to understand these changes in more depth, read on… We have provided some further detail and commentary regarding the most significant changes that we’ve touched on above.
(Almost) no work test for over 67s
For people over 67, contributing to superannuation is about to get a lot easier. Under the current rules, a work test needs to be met before contributions are made, unless an exemption applies. The work test requires that the person contributing has worked for at least 40 hours in a 30-day period during the financial year, before making a contribution.
From 1 July 2022, people up to 75 can make most types of contributions without needing to meet the work test. This includes large non-concessional and salary sacrifice contributions. Importantly, this means that those above the age of 67 who can’t contribute to super under the current rules, may be able to contribute again from 1 July 2022. It’s worth noting, however,
that while headlines report ‘no more work test for concessional contributions’, the test does still apply for personally deductible contributions. Other eligibility rules remain, such as a maximum contribution age of 75 and total superannuation balance.
As a reminder, there can be significant issues if contributions are made without meeting all requirements, so understanding the exact nature of your contributions is especially important.
Getting more money into super sooner (and later)
Other changes from 1 July 2022 will help Australians get more money into super. The first change is to enable people between 67 and 75 to use the ‘bring forward’ rules for non-concessional contributions, allowing up to 3 years’ worth of contributions to be made in one year (currently up to $330,000). For those with no further capital to contribute to super, you could still benefit from the changes, as the ability to make large non-concessional contributions also increases the opportunity to significantly reduce the potential tax that may eventually be paid when superannuation death benefits are paid to adult children.
The second change to allow more money into super is reducing the eligibility age for ‘downsizer’ contributions from 65 to 60. Downsizer contributions allow contributions up to $300,000 per person within 90 days of settlement for those selling a current or former home. More rules apply of course, however this downsizer contribution is a useful tool for those eligible – especially as this contribution is not counted in the normal contribution limits and can be made even after age 75.
Changes to be aware of when considering your wider contribution plans
Amongst the big-ticket changes are some smaller amendments to be aware of. These changes are intended to benefit young people and accumulators but can potentially impact on pre-retirement and retirement plans with super contributions.
The minimum monthly earnings required before an employer must pay super ($450 a month currently) is being abolished from 1 July 2022. As well as impacting low-income earners, this change has the potential to impact people who have multiple jobs or work just to meet work test rules while also making maximum concessional contributions. It may also impact business owners who will now have to make superannuation contributions to these staff members.
A further change from 1 July 2022 is an increase to the super contribution rate from 10% to 10.5%. Similar to the change above, this might not be a large issue but is something to be conscious of when planning your superannuation contribution strategy, and if you are a business owner, setting salaries for staff.
Navigating these superannuation changes, and indeed the complex superannuation environment, is challenging. At Oxlade Financial, our independent financial advisers are experts at helping clients navigate the financial environment in order to maximise opportunities. If you have any questions about this raft of changes, or would like to have an initial chat with one of our planners about your arrangements, please contact us on 07 3667 7260.
Any information in this article is general in nature and does not consider any of your personal objectives, financial situation and needs. It is as intended, to be of a general nature only and NOT a recommendation to you. You should consider whether the information is appropriate to your needs, and where appropriate, seek personal advice from a registered financial adviser.