Eight ways your finances could change

This year there are a flurry of financial changes  coming through on 1 July. Some may dramatically affect your retirement income possibilities. At the very least, they should encourage you to review your current settings and consider if you could earn more by effectively employing these new allowances.

Here’s a brief summary of the eight most important changes that affect Australian retirees as well as those planning retirement in the near future.

Super Guarantee

The Superannuation Guarantee (SG) will increase from 10% to 10.5% on 1 July. The employer pays this amount, which is due on all salaries or wages paid on or after 1 July, even if the relevant work was performed before that date.

Super Guarantee eligibility threshold

More people will be eligible for this payment after 1 July, as the SG will then be paid on behalf of all employees aged 18 and over, regardless of how much they earn. (Previously there was a $450 per month eligibility threshold).

Work Test

From 1 July, super fund members who are under 75 years of age will no longer have to meet the ‘work test’. This means that they can make or receive personal contributions and salary sacrifice contributions, subject to the existing contribution cap limits. They can also use the ‘bring forward’ rule. Those who are aged 67-74, however, will need to meet the work test if they plan to claim a personal super deduction for their contribution.

You can read more about the changes that make it easier to contribute to super here.

Downsizer contributions

The minimum age for making so-called ‘downsizer contributions’  will reduce from 65 to 60 on 1 July. The ATO has more details on this. Downsizer contributions are non-concessional (post-tax) superannuation contributions up to $300,000 per person or $600,000 per couple, from the sale (or part sale) of a home. All other conditions attached to downsizer contributions remain the same. The significant upside of the downsizer contribution is that the $1.7 million cap on non-concessional contributions does not apply to the downsizer one.

Non-concessional contributions cap

From 1 July, the ‘bring forward’ rule will allow the next two years of contributions to be ‘brought forward’ for those aged 75 and younger. Previously (this past financial year) this applied to those aged 67 and younger. The use of this rule remains subject to your overall superannuation balance. Here are details from the ATO.

First Home Super Saver Scheme (FHSS)

For those who are using this scheme, from 1 July the amount of eligible contributions that can be included in your maximum releasable amount will increase from $30,000 to $50,000. However, the eligible contributions that count towards this maximum releasable amount per financial year remains at $15,000.

Pension Drawdowns

This is not a change, so much as an extension. On 1 July the minimum superannuation drawdown rates, that were halved as a response to market volatility during the Covid pandemic, will remain at the 50% reduction which is now extended until June 30, 2023.  You can also check the ATO site for more details.

Support with your super drawdown strategy

1 July is also the date that the Retirement Income Covenant regulations come into active practice for Australian super funds. Put simply, this legislation will require superannuation trustees to help all members in  retirement, or approaching it, to manage effective drawdowns of their superannuation savings. This is a big task. We will write more about this in coming weeks including just what you fund is now required to do for you.

Taking advantage of 1 July changes

The first two changes are ‘no brainers’, meaning that it’s up to your employer to adjust your SG or to now include you in super contributions, given the scrapping of the $450 earnings threshold. All you need to do is check that these contributions are being made.

Reviewing your own contributions

The work test, downsizer and non-concessional cap changes are much more complex. Generally speaking, these changes will result in a significant widening of access to concessional super allowances. But, as always, the devil will be in the detail.

If using these concessions is already part of your strategy to maximise your retirement income, or your retirement income planning, it would now be wise to check the detail of all these new rules. That’s why we have supplied the ATO links above. But before committing large sums you may wish to discuss the trade-offs you will make if you use these funds for this purpose, rather than another. Such decisions can be irreversible and costly if you get the sums wrong.

For this reason major retirement savings initiatives are usually best made with the support of a qualified and trusted financial professional.

This doesn’t have to cost a fortune. Retirement Essentials offers advice consultations starting at just $150 for 45 minutes. If such a discussion enables you to test your thinking and better understand the rules, then it’s money well spent.  Financial peace of mind is priceless, regardless of your age or stage. Let us help you book a consultation if you too want to discuss your key money concerns with an experienced adviser.

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