How can these rule changes increase your income?
Big things are happening to super on July 1. These changes have the power to significantly improve income for older workers, Age Pensioners, and those aged 60-75.
Here’s a summary of what you need to know about superannuation contributions and how to make the most of the new rules.
Superannuation is the vehicle in which retirement savings are held. It is tax-preferenced – which means that money moved in and out of superannuation can be taxed at a lower rate.
There are two main ‘phases’ for a superannuation account – the accumulation phase, followed by the decumulation (also known as the pension phase). Decumulation starts when the super fund member reaches their preservation age and decides to start to drawdown their savings, or decumulate.
The rules attached to different types of contributions and the associated tax treatment can vary. It is fair to say they can be both complex and confusing.
The following overview is designed to ‘unconfuse’ you. It does not cover every contingency, but rather provides a roadmap you can use to better understand what you can and can’t do. Decisions about contributing or withdrawing super, and whether to do this at preservation age or later, are dependent upon many other financial factors specific to your individual situation. As always, such decisions are best taken with the support of a professional financial adviser, who will assist you to consider all the financial and tax implications.
Super contributions pre-retirement
There are three main ways that money can be put into your super account when you are in accumulation phase:
Compulsory superannuation contributions made on your behalf by your employer. Termed the Super Guarantee Contribution (SGC), these are currently a minimum 10% of your gross wage or salary. They are called concessional contributions. Concessional contributions are taxed at 15%.
Salary sacrifice is a pre-tax personal contribution you may decide to make, also called a concessional contribution. There is a combined concessional contribution cap of $27,500 per year.
Other personal contributions are post-tax, termed non-concessional and the limit, regardless of age, of $110,000 per year or $330,000 under the ‘bring forward’ rule, over a period of three years. There is no additional tax paid on non concessional contributions as you have already paid tax on this money – unless of course you exceed those limits. .
Super contributions post-retirement
As explained above, once preservation age is reached (and this varies according to your date of birth), you can decide to take money out of super without a penalty. You may or may not decide to do so, but when you do begin to drawdown, you have changed your super fund from accumulation to decumulation mode.
Assuming you are working, compulsory superannuation contributions made on your behalf by your employer. These Super Guarantee Contribution (SGC) contributions are currently a minimum 10% of your gross wage or salary. These are called concessional contributions.
Salary sacrifice is a pre-tax personal contribution you may decide to make, also called a concessional contribution, with a combined concessional cap of $27,500 per year.
Other voluntary contributions (post-tax or non-concessional) with a limit, regardless of age, of $110,000 per year. You can contribute up to $330,000 in one year if you meet the conditions for the “bring forward” rule. or $330,000 under the ‘bring forward’ rule, over a period of three years.
As of 1 July this year, the rules will relax on how much and at what age such contributions can occur.
Such changes present opportunities for older Australians to have higher contributions and use contributions as a strategy to maximise retirement income until a later age.
Here is a brief summary of the current rules and how they will change on 1 July.
Superannuation Guarantee contributions by employers
| Current Laws | Legislative change effective 1 July 2022 |
| The Superannuation Guarantee does not apply to an eligible employee whose salary or wages are less than $450-a-month | The Superannuation Guarantee applies to all eligible employees including those whose salary or wages are less than $450-a-month. |
Reduced eligibility age for downsizer contributions
| Current Laws | Legislative change effective 1 July 2022 |
| Where individuals aged 65 or over (and meet the requirements and contribution timeframes) may make downsizer contributions from the proceeds of the sale of their home. | The age limit has dropped so individuals aged 60 or over (and meet the requirements and contribution timeframes) may make downsizer contributions from the proceeds of the sale of their home. |
Greater flexibility for those between 67 and 75 to make contributions to super
| Current Laws | Legislative change effective 1 July 2022 |
| Individuals aged between 67 and 75 are required to meet the work test in respect of contributions that are non-concessional contributions or salary sacrificed contributions and personal deductible contributions. | Individuals aged between 67 and 75 will no longer be required to meet the work test in respect of contributions that are non-concessional contributions or salary sacrificed contributions (excluding personal deductible contributions). |
Using bring forward rules to make non-concessional contributions to super
| Current Laws | Legislative change effective 1 July 2022 |
| Individuals under 67 years of age (and meet eligibility requirements) may access the bring forward non-concessional contributions rule in a particular financial year. | Individuals aged 67 to 74 years (inclusive) (and meet eligibility requirements) may access the bring forward non-concessional contributions rule in a particular financial year |
What do these changes mean for you?
Are you an older worker?
The payment of the SGC to all workers, not just those earning more than $450 per month, means many older people doing part-time work may now get additional super. This is a big win.
Using ‘downsizer’ contributions and Centrelink’s younger spouse superannuation rules
When these rules are used in tandem, it means a retiree can contribute up to a maximum of $300,000 of the proceeds of a house sale to a younger spouse’s accumulation account, which means this money is NOT included in the older spouse’s asset test for the Age Pension. This is a huge win as well, but make sure you understand the ‘downsizer’ rules and do your sums well – preferably with the support of a qualified financial adviser – before committing to this decision. There are lots of other options that might be available here including an additional non concessional contribution. It might be worth booking a consultation with one of our Advisers to talk this through.
People aged 67-75
Older Australians aged 67-75 no longer have to meet the work test for a range of contributions.. This is another positive change. But again, before deciding you would like to contribute more to your super, take the time to consider why you are doing this, how much is appropriate, and how to time the contribution to receive maximum benefit.
We trust that you now have a stronger understanding of the basic rules of contributions. And that this knowledge allows you to better understand ways of using these rules to maximise your retirement income. But it is important to ensure that you canvas all options before responding to the rules changes.. If you believe that any of the above strategies may work in your personal situation, why not book a consultation with a Retirement Essentials Financial Adviser and let them do the sums to show you how super contributions can improve your retirement.
This article is provided by Retirement Essentials Representative Number: 001260855. We are an authorised representative of SuperEd Pty Ltd ABN 88 118 480 907 AFSL #468859. This information is not intended as financial product advice, legal advice or taxation advice. It does not take into account your personal situation, goals or needs and you should assess your own financial situation, consider if the information is suitable for you and ensure you read the relevant Product Disclosure Statement (PDS) if you choose to make any changes to your financial situation. It is always advisable to consult a financial adviser before making financial decisions.
I am 69, my husband is 70. We have recently sold our investment property. Will the new rules from 1 July, allow us to add the equity from this property to a ‘downsizer’ contribution to our super fund?
Hi Jaqualine, thank you for your question. For you and anyone else who would like to have a discussion with someone they can trust about your options and the potential pros/cons we do offer financial advice consultations.
Our financial advice consultations are designed to help you better understand your needs and goals along with some of the actions you can consider to help you achieve those goals. The consultation is online, goes for up to 45 minutes and costs $150.
CLICK HERE to book now.
If a person only has personal superannuation, is single and wishes to downsize, can he or she put up to $300,000 into superannuation and get a reduction in application of the Assets Test? In the old days, if a person received some superannuation as part of a property settlement/divorce, it could not automatically be rolled into their superannuation account (if they had one). Lots of people (especially women) have been shafted from superfunds when they quit work to start a family, or when they were terminated due to a workplace injury and given nothing more than a refund of contributions plus a tiny amount of interest.
Hi. thanks for your question. A single person can use the downsizer option to contribute up to $300,000 into superannuation. This $300,000 will however be included in the Age Pension assets test and deemed income will also be included in the income test. A couple could contribute up to $300,000 each, $600,000 in total. If one member of a couple is not yet of Age Pension Age, and their super is still in an accumulation account, the younger partner’s super will not be included in the Age Pension assets test. You can read more about this here.
I would like to know if a single person who has a Personal Superannuation Account (no employer based super) can get a 40% reduction in the Assets Test on the $300,000 contributed from downsizing.
Hi. I am not entirely sure what you are referring to here but it could be the treatment of lifetime income streams such as a lifetime annuity. These are typically purchased from superannuation savings. Only 60% of the purchase price of the annuity, until age 84, is assessed under the assets test, therefore 40% is not. After age 84 only 30% is assessed. Challenger has some good information about this which you can find here.
If you want to talk to one of our Financial Advisers about your retirement strategy you can also book a consultation.
Hi, I don’t see any reference to the ability to carry forward unused concessional contributions from previous years. This is a very important mechanism, especially for those approaching retirement. See ATO website for full T&Cs.
Hi Peter. Thanks for your comment and you are correct that this is a very important provision and it is a great topic for a future article. Thank you. This article was focused on the recent legislative changes that become effective from 1 July 2022 rather than all the contribution rules.
Thanks again
Hi much cash can you have in the bank before it affects your pension
Hi Peter, thanks for reaching out. The total value of assets you can have before it impacts your pension varies depending on things like if you are single/couple and homeowner/non-homeowner. I recommend you go through our quick and free ELIGIBILITY CALCULATOR to understand how much pension you may be eligible for and which threshold applies to you.
Turning 60 in July 2022. can I sell my investment property and contribute to my super to minimize my capital gains tax. Currently facing a potential capital gains tax bill of $300,000 !
Hi Phil, thank you for reaching out for help planning your next steps. If you would like to have a discussion with someone you can trust we do offer financial advice consultations.
Our financial adviser can talk with you about the options you can consider regarding the sale of your investment property, Super contributions and many other topics. The consultation can be either online or via phone call, goes for up to 45 minutes and costs $150.
CLICK HERE to book now.
My wife is 71 and I am 72 we both have superannuation accounts in the pension phase. In addition I have a defined benefit SA Super income which is taxed. Neither of us is working. My wife’s superannuation balance is approximately $700,000. With the removal of the work test it is my understanding that I can now make a $3,000 Spouse contribution to my wife’s superannuation and be eligible for a tax rebate?
Would appreciate confirmation.
Hi Phil thanks for reaching out! We’re happy for one of our other members to comment if they know the answer from experience but from out perspective we think you should reach out to an accountant/tax agent for clarity as to your options.