Spotlight on the new mandatory superannuation fund performance test

Spotlight on the new mandatory superannuation fund performance test

If you measure from last year's COVID lows, Superannuation has provided many fund members with stellar returns since then. As always, some funds performed better than others. Now, recent government reforms, along with the new mandatory performance test, make it easier to find out how your fund compares with others. However, we recommend looking looking beneath the simplicity of the pass / fail result the new test gives, as it may not tell the real story about your fund.

You may have noticed recent media reports naming 13 super funds that failed a performance test conducted by the super industry regulator, the Australian Prudential Regulation Authority (APRA).

While the news may have come as a shock to members of those funds, it’s important to understand the aims and limitations of the new test.

Background to super reforms

Under the federal government’s Your Super, Your Future reforms passed in June, super funds that fail to meet an annual performance test must notify their members about their underperformance. Funds that fail the test for two consecutive years won’t be able to accept new members until their performance improves or they merge with another fund.

The government has also made it easier to compare funds. As of July 1, anyone can jump onto the ATO’s new YourSuper comparison tool, which ranks funds by fees and investment returns. For now though, the tool only compares MySuper funds which are the default products for employees who don’t choose a fund.

While it’s hard to argue with any initiative that aids transparency and protects people from poorly performing super funds, caution is needed when interpreting the super tool.

Compare like with like

When you compare super funds, it’s important to compare like with like. Awarding funds a simple pass or fail does not take into account a variety of factors such as the risk and return trade-off in investment options and whether the fund is a lifecycle product that reduces risk as a member ages.

Conservative options with a higher percentage of cash and fixed interest investments tend to deliver more modest returns in the long run but with a smoother ride along the way. Whereas balanced and growth options with a higher allocation to shares may deliver higher returns in the long run but with more volatility.

That means a fund may underperform in the short term but still provide members with their desired level of risk and returns. Working out the most appropriate option for you will also depend on when you plan to retire and how much longer your money will be invested in the market. Generally, the shorter your time frame, the more conservative you are likely to be.

The YourSuper comparison tool also doesn’t consider the value of insurance offered by funds or other member services.

The value of advice

While the government’s super reforms are aimed at those who may not be engaged with their super or understand how their savings are being managed, you don’t need to go it alone. This is where our expertise can assist, ensuring your choices are tailored to your circumstances and guiding your decision.

In fact, a recent study by Russell Investments quantified the value of advice. It found that financial advisers added an estimated 5.2 per cent in value to their clients’ portfolios in the tumultuous period from the beginning of the pandemic through to the market’s stunning recovery by mid-2021.i

The report broke down this figure of 5.2 per cent into five key elements:

• Preventing behavioural mistakes, like switching to cash and crystallising your paper losses after a market fall (2 per cent)

• Advising on appropriate asset allocation (1.1 per cent)

• Optimising cash holdings (0.6 per cent)

• Tax-effective investing and planning (1.5 per cent)

• Expert wealth management knowledge derived from years of market experience – priceless.
The report found the beneficial impact for an investor who started 2020 with a portfolio worth $250,000 and stayed in the market until 31 May this year – rather than switching to cash when markets were volatile in March 2020 – was as large as $40,000.

The bottom line

It’s important for all investors to understand how their super is performing. Even more important though, is having a financial plan that takes into consideration not just your choice of super fund, but all your personal goals and circumstances.

If you would like to discuss your super in the context of your overall investment strategy, give us a call.

i https://russellinvestments.com/us/resources/financial-professionals/value-of-advisor

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Is super insurance cover worth it

Is super insurance cover worth it? Pay close attention to the terms

Is super insurance cover worth it

Is super insurance cover worth it? Pay close attention to the terms

Buying insurance through super has some advantages, but you need to make sure you are getting the right cover for your individual needs. In some cases, you may be paying for nothing.

Most super funds offer life and total and permanent disability (TPD) insurance to fund members and, in some cases, income protection cover.

But since the introduction of the Protecting your Super reforms in 2019, this cover is no longer automatic.

If you have less than $6000 in your account or it has been inactive, then the insurance component will have been cancelled unless you advised the fund otherwise. An account may be deemed inactive if, for example, it has not received a contribution for more than 16 months.

In addition, insurance cover is no longer offered to new fund members aged under 25.

Is it right for you?

If you do have insurance in your super account, then it’s a good idea to check the cover is right for you. This is particularly the case now that the stapling measure has been introduced as part of the recent Your Future, Your Super legislation.

From November 1, unless you choose a new fund when you change jobs, the first fund you joined will be ‘stapled’ to you throughout your working life. This is where problems can arise; while the fund stays the same, so will the insurance cover.

Say you move from a low-risk job where the insurance offered in your super was more than adequate to a high-risk job such as in construction or mining. Would your insurance now cover you if you were no longer able to work? And if it did, would the cover be sufficient? It may well be that your new occupation is not even covered.

Most TPD policies within super are for “any” occupation rather than “own” occupation. This three-letter definition can make a world of difference. If you still have the capacity to work in some other occupation, then it is likely your insurance will not pay out.i

Many benefits

Despite this, there are still quite a few benefits to having insurance cover in your super. Firstly, the premiums are generally lower because the fund buys the insurance cover in bulk. In addition, your premium payments are effectively lower as they come out of your pre-tax rather than your post-tax income.

What’s more, you are not having to put your hand in your pocket to pay the premiums as the money automatically comes out of your super. Of course, the flipside is you will have less money working to build your retirement savings.

So, when it comes to taking out insurance, going through your super has lots of positives.

But the downside is that the default level payout may be lower than you might need. You should check if this is the case and maybe consider making additional premium payments to give yourself and your family more appropriate cover. Be aware though that opting for a higher payout could mean you have to undergo a medical.

Also, life insurance cover in super actually reduces over time to the point where your cover reaches zero by the time you are 70. And for TPD cover it ceases at 65.ii

Regular checks

Wherever you get insurance cover, it’s important to remember that its purpose is generally to cover any outstanding debt and ongoing financial obligations should you pass away or become unable to work.

For this reason, it is important to regularly check your insurance within your super to ensure it is sufficient to maintain your lifestyle.

If it falls short, then you might also consider taking out a policy outside super.

While income protection is sometimes available through your super, it may be necessary to look outside. Such policies pay you a regular income for a specified period if you are unable to work through an illness or injury, and premiums are tax-deductible outside super.

When you are leading a busy life with lots of claims on your income, insurance may be seen as an unnecessary expense. But when it comes to the crunch, it can play a valuable role in you and your family’s life when you need it most.

Please call us to discuss your insurance needs and whether your existing cover, both inside super and outside, is sufficient.

i https://moneysmart.gov.au/how-life-insurance-works/total-and-permanent-disability-tpd-insurance

ii https://thenewdaily.com.au/finance/dollars-and-sense/2021/08/02/insurance-life-tpd-superannuation/

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


What if I exceed my super contributions cap?

exceeding super contributions cap

What if I exceed my super contributions cap?

Making additional personal contributions to superannuation is a tax efficient way to boost your retirement savings. But there are strict caps or limits on the amount you can contribute each year and stiff tax penalties for exceeding them.

Even though the annual contribution caps went up on 1 July 2021, you still need to keep a close eye on how much you and your employer contribute.

If you do go over your annual caps, it could be a costly mistake come tax time.

Higher limits from 1 July 2021

It’s important to remember there are caps on both the concessional (pre-tax) and non-concessional (after-tax) contributions you can make each year.

From 1 July 2021, the cap on concessional contributions into super is $27,500, regardless of your age. In recent years this annual cap was only $25,000, so the new higher limit means you can add a little more of your pre-tax income to your retirement nest-egg.

It’s worth remembering that your $27,500 concessional cap includes any contributions made into your account by your employer and any salary sacrifice amounts. Also, your employer’s compulsory super guarantee amounts increased from 9.5 per cent to 10 per cent from 1 July 2021, so you may need to be extra careful about exceeding your cap.

If your super account balance could do with a little help and you haven’t used the entire amount of your annual concessional contributions cap in recent years, you may be eligible to contribute a larger amount using the ‘carry-forward’ rule.

The annual cap on non-concessional (after-tax) contributions also rose on 1 July 2021 from $100,000 to $110,000.

If you meet certain eligibility criteria, you may be able to contribute up to three years of non-concessional contributions caps (3 years x $110,000 = $330,000) in a single financial year, by ‘bringing forward’ up to two years’ contribution caps. The rules for doing this have recently become even more complex, so ensure you talk to us before making your contribution.

What happens if I exceed my caps?

In short, you could be up for additional tax. The actual amount of tax will depend on your age, the type of contribution and the financial year in which the contribution was made.

Exceeding your concessional cap

Going over your concessional contributions cap, generally means a bigger tax bill because the excess amount is counted as part of your assessable personal income.

Until 30 June 2021, you were also required to pay a penalty to the ATO called the excess concessional contributions (ECC) charge. This was removed from 1 July 2021, but you will still be up for additional tax.

If you exceed your annual concessional contributions cap, the ATO will notify you. Your excess contributions are then included in your assessable income, meaning they are taxed at your marginal tax rate, minus a 15 per cent tax offset to reflect the contributions tax you paid when the money entered your account.

You then have a choice:

• You can withdraw up to 85 per cent of your excess concessional contributions from your super.

• Or, if you choose to leave the contributions in your super account, they are counted towards your annual non-concessional contributions cap. This may create additional challenges if you have also made large non-concessional contributions.

Exceeding your non-concessional cap

Making non-concessional contributions that go over your annual cap also results in a larger tax bill, as these excess contributions are taxed at the top tax rate of 47 per cent (including the Medicare levy).

The ATO will notify you and you can then choose to withdraw your excess contributions and 85 per cent of the earnings on them. Generally, these earnings will be taxed at your marginal tax rate less a tax offset.

However, if you decide to leave your excess non-concessional contributions in your super account, they are taxed at 47 per cent, even if your personal marginal tax rate is lower. As non-concessional contributions are from after-tax money, this means you are paying double tax, because the tax amount must be paid from money in your super account.

Making additional voluntary super contributions is a great way to boost your retirement savings, but as you can see, it is important to know your limits.

If you would like more information about saving for your retirement and making some extra contributions into your super fund, call us today.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Important new superannuation rules from July 1st 2021: What you need to know

Important new superannuation rules from July 1st 2021

As the new financial year gets underway, there are some big changes to superannuation that could add up to a welcome lift in your retirement savings. Here's what you need to know.

Some, like the rise in the Superannuation Guarantee (SG), will happen automatically so you won’t need to lift a finger. Others, like higher contribution caps, may require some planning to get the full benefit.

Here’s a summary of the changes starting from 1 July 2021.

Increase in the Super Guarantee

If you are an employee, the amount your employer contributes to your super fund has just increased to 10 per cent of your pre-tax ordinary time earnings, up from 9.5 per cent. For higher income earners, employers are not required to pay the SG on amounts you earn above $58,920 per quarter (up from $57,090 in 2020-21).

Say you earn $100,000 a year before tax. In the 2021-22 financial year your employer is required to contribute $10,000 into your super account, up from $9,500 last financial year. For younger members especially, that could add up to a substantial increase in your retirement savings once time and compound earnings weave their magic.

The SG rate is scheduled to rise again to 10.5 per cent on 1 July 2022 and gradually increase until it reaches 12% on 1 July 2025.

Higher contributions caps

The annual limits on the amount you can contribute to super have also been lifted, for the first time in four years.

The concessional (before tax) contributions cap has increased from $25,000 a year to $27,500. These contributions include SG payments from your employer as well as any salary sacrifice arrangements you have in place and personal contributions you claim a tax deduction for.

At the same time, the cap on non-concessional (after tax) contributions has gone up from $100,000 to $110,000. This means the amount you can contribute under a bring-forward arrangement has also increased, provided you are eligible.

Under the bring-forward rule, you can put up to three years’ non-concessional contributions into your super in a single financial year. So this year, if eligible, you could potentially contribute up to $330,000 this way (3 x $110,000), up from $300,000 previously. This is a useful strategy if you receive a windfall and want to use some of it to boost your retirement savings.

More generous Total Super Balance and Transfer Balance Cap

Super remains the most tax-efficient savings vehicle in the land, but there are limits to how much you can squirrel away in super for your retirement. These limits, however, have just become a little more generous.

The Total Super Balance (TSB) threshold which determines whether you can make non-concessional (after-tax) contributions in a financial year is assessed at 30 June of the previous financial year. The TSB at which no non-concessional contributions can be made this financial year will increase to $1.7 million from $1.6 million.

Just to confuse matters, the same limit applies to the amount you can transfer from your accumulation account into a retirement phase super pension. This is known as the Transfer Balance Cap (TBC), and it has also just increased to $1.7 million from $1.6 million.

If you retired and started a super pension before July 1 this year, your TBC may be less than $1.7 million and you may not be able to take full advantage of the increased TBC. The rules are complex, so get in touch if you would like to discuss your situation.

Reduction in minimum pension drawdowns extended

In response to record low interest rates and volatile investment markets, the government has extended the temporary 50 per cent reduction in minimum pension drawdowns until 30 June 2022.

Retirees with certain super pensions and annuities are required to withdraw a minimum percentage of their account balance each year. Due to the impact of the pandemic on retiree finances, the minimum withdrawal amounts were also halved for the 2019-20 and 2020-21 financial years.

Time to prepare

There’s a lot for super fund members to digest. SMSF trustees in particular will need to ensure they document changes that affect any of the members in their fund. But these latest changes also present retirement planning opportunities.

Whatever your situation, if you would like to discuss how to make the most of the new rules, please get in touch.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


New SMSF Rule Change in 2021: member limit to rise to 6

New SMSF Rule Change in 2021: member limit to rise to 6

While it’s not yet in force, the limit on SMSF member numbers is set to increase from the current four to six members later this year.

For some SMSFs, this will be a welcome change and will mean additional family members can join their existing fund.

Implications of the rule change

The new legislation is currently before Parliament and should come into force in the second half of 2021.

Although 93 per cent of SMSFs only have one or two members, for larger families the reforms will provide greater flexibility to add extra members. This could include adult children and their partners.i

While adding members to your SMSF will be easier, there are potential drawbacks as well as opportunities to including multiple generations in the one fund. So it’s important to think through the ramifications and get professional advice before acting.

Benefits of additional members

Larger SMSFs can have a number of benefits, including the potential to lower the overall fees paid by members. Many annual running fees – such as the annual auditing fee – are charged on a fixed dollar basis, regardless of the number of members.

With more members, costs per member will reduce. Adding extra members to an existing SMSF also avoids the expense of running several SMSFs to cover all family members.

Adding members to your SMSF will also create a larger pool of super money to invest. A higher overall fund balance increases your choice of potential investments and can improve diversification.

You will also have more negotiation and purchasing power and it can make it easier to implement certain tax strategies.

Wealth transfer benefits

In many situations, having all the family members in a single SMSF can help with intergenerational wealth transfer.

It can potentially streamline your estate planning and provide tax advantages as ownership of key assets is retained within the SMSF, reducing buy/sell costs and capital gains tax bills.

Given the lower annual contribution caps since 2017, having more fund members can also help an SMSF have the capital to purchase larger assets such as your business premises.

Additional members also make it easier for one or more of the SMSF’s trustees to travel overseas for an extended period without endangering the fund’s complying status.

More complex decision-making

Expanded funds can work well if all the members agree and get along, but the SMSF structure can make managing conflict difficult.

More members mean more risk of a dispute. Relationship breakdowns between fund members can also be a problem, particularly if account balances need to be withdrawn or divided between divorcing partners.

Additional trustees also reduce the control an individual trustee has over decision making, which is often the key reason for establishing an SMSF.

Bigger funds also mean more complex administration and slower, inefficient decision making. Appointing and removing trustees can also become harder.

Considering the different generations

Investing appropriately for additional members needs careful management. If the SMSF includes several generations, designing your fund’s investment strategy will be more complex, as it must suit members with diverse risk profiles and investment horizons.

With more members, paying out death benefits can be trickier. Payment decisions made by other trustees may not be what the deceased member intended. If the SMSF’s key asset is a business premises, the fund may have limited liquidity to pay a benefit.

An enlarged SMSF can also create the potential for financial abuse, with elderly fund members outvoted or manipulated by younger trustees.

Look before you leap

Trust legislation in some Australian states prohibits more than four individual trustees in a trust, so SMSFs looking to add members need to check the rules in their state.

Trustees will also need to check the SMSF’s trust deed. Some deeds prohibit more than four members, so it must be amended before additional members can join.

Amendments may also be needed to cover who and how many trustees are required to sign documents and cheques on behalf of the SMSF.

If you’d like to discuss these proposed changes or the running of your SMSF please give us a call.

i https://data.gov.au/data/dataset/self-managed-superannuation-funds/resource/ad70308d-ff84-4313-81d1-e30d0b274f29

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Splitting your super when you split up - what you should know

Splitting your super when you split up - what you should know

Is separation or divorce is leading you to think about divvying up your super? There's a lot to consider when doing so — not least the tax implications. Here are a few things you need to know.

In years gone by, superannuation was not treated as matrimonial property, so divorce settlements typically saw the woman keeping the house as she generally had the children and the man keeping his super. In a sense, neither party won. She ended up with a house but no money for her retirement while he had nowhere to live but money for his later years.

To remedy this situation, since 2002 super can be included when valuing a couple’s combined assets for a divorce settlement. After all, these days super is probably your second largest asset after your family home.

While super is counted in the calculation of the total property, that does not mean it is mandatory to split the super – the choice is yours.

Unlike the early 2000s, both partners are likely to have superannuation these days although traditionally women will still tend to have lower balances.i On average, women retire with just over half the super balance of men and 23 per cent of women retire with no super at all.

As a result, many divorcing couples may end up splitting super along with their other property.

How to split your super

If you decide to split your super, then you have three avenues, but keep in mind that all require legal advice.

The three ways to split your super are:

A formal written agreement that both you and your partner instruct a lawyer stating you have sought independent advice,

A consent order, or

A court order.
A court order is the last resort if you can’t agree on a property settlement.

You can split your super as you choose both in terms of the amount and the timing. You can split it as a percentage or as an agreed figure and you can choose to split it immediately or at some time in the future. Much will depend on each of your life stages.

But whatever you decide, you MUST comply with the superannuation laws. Money received from your partner’s super must be kept in super unless you satisfy a condition of release. You also need to be mindful of taxable and non-taxable components and divide them equally.

How does it work?

Say the superannuation balances of a couple is $500,000 with John having $400,000 and Susie $100,000. If the property settlement on divorce was decided as a straight 50:50 split and it included the super, then John would need to give $150,000 of his super to Susie.

Susie would nominate a fund and the money would be transferred.

If you have a binding financial agreement or a court order, this transfer of assets from one fund to another will not trigger a CGT event. But if you don’t have such an agreement, then John would trigger a CGT event on the $150,000 he transferred. Susie, meanwhile, would have the advantage of resetting the cost base on her received $150,000. So, a win for Susie, but not for John.

If John happened to be in the pension phase but Susie was still too young, the money that is transferred from his super to Susie will be treated according to his situation. As a result, Susie would be able to access the money before she reached preservation age.

What about SMSFs?

If you have a self-managed super fund, the situation could get a little more complicated as you have to deal with the issue of trusteeship.

If there are only two members/trustees in the fund and Susie chose to leave, then John would either have to find a new trustee within six months or change to a corporate trustee where he could be the sole director.

Assets within an SMSF can also prove an issue, particularly if a sizeable proportion of the fund was tied up in a single asset such as commercial premises. How easy would it be to actually sell the premises? What if the property was John’s business premises and the means by which John was in a position to pay Susie child support? These are questions that need addressing.

If you are in the process of divorce or considering it, why not call us to help you plan your finances before and after the event.

i https://www.afr.com/companies/financial-services/women-less-than-equal-in-retirement-20201203-p56khb#

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Tax-effective ways to boost your super

Tax-effective ways to boost your super

After a year when the average superannuation balance fell slightly or, at best, moved sideways, now could be a good time to think about ways to rebuild your savings while being mindful of tax.

With the Reserve Bank reducing interest rates to record lows and not anticipating a rise until 2024, it’s more important than ever to ensure your retirement savings are working as hard as possible.

One way to do that is by taking advantage of super, which offers valuable opportunities to tax-effectively rebuild your retirement savings.

Reducing your tax bill

If you make super contributions by setting up a salary sacrifice arrangement with your employer, for example, you can potentially reduce your tax bill while also boosting your super.

By diverting some of your pre-tax salary into super rather than taking it as take home pay, your money will be taxed at 15 per cent, rather than your marginal tax rate.

Investments made through super also enjoy a concessional tax rate of only 15 percent on any investment earnings. This compares with tax at your marginal rate, which could be as high as 47 per cent (including the Medicare Levy), on investment earnings outside super.

Claim a tax deduction

You are also able to make personal super contributions on which you claim a tax deduction.

Previously only available to the self-employed, this strategy is now available to everyone. It allows you to claim a tax deduction in your annual tax return for eligible voluntary contributions into your super account made during the financial year from your after-tax earnings.

Providing you stay under the annual concessional contribution limit (currently $25,000 a year), this can be a useful way to cut the amount of income you pay tax on.

Play catch-up with your contributions

If you have less than $500,000 in your super account, you may consider making carry-forward concessional contributions. If you haven’t fully used your annual concessional contributions caps since 1 July 2018, you may have some unused cap amounts that you could use to make a larger contribution this financial year.

Unused concessional cap amounts can now be carried forward for up to five years.

Consider non-concessional contributions

If you have more funds available and are closer to retirement, you might also consider making a non-concessional (after tax) contribution into your super account to boost the amount you have in the run-up to retirement.

Generally, you can contribute up to $100,000 a year in after-tax money. Not only is the tax on investment earnings on these contributions only 15 per cent, but they boost the income you can enjoy tax-free in retirement.

If you have a larger amount available, from an inheritance or selling an asset for example, you could even consider making a bring-forward contribution of up to $300,000 in a single year if you are under age 65.

Get the government to contribute

Another opportunity for eligible low to middle income earners is to make a personal after tax contribution of up to $1,000 and potentially receive a co contribution of up to $500 from the government. The co-contribution amount will vary depending on your income and the amount of contributions you make, but it can be an easy way to increase your super balance.

Another tax strategy to consider if your spouse or de facto partner earns less than $40,000 is to make an after-tax contribution into their super account. You could be eligible for the maximum tax offset of up to $540 if you make a contribution of at least $3,000 into your spouse’s super account, provided they earn $37,000 or less. The tax offset tapers off as your spouse’s income increases before cutting out at $40,000.

Strategic review of asset allocation

As super is a structure for investing, not an investment in its own right, it might also be a good time to take a closer look at the mix of assets in your super.

After COVID-induced market volatility, and with historically low interest rates, your allocation may have drifted away from your strategic plan.

With the right advice, tax-effective super strategies offer an easy way to rebuild your retirement savings and achieve your overall wealth creation goals.

If you would like to discuss your super or investment strategy, call us today.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


super changes add flexibility

Super Changes Add Flexbility

super changes add flexibility

Super Changes Add Flexbility

Just when you thought you had a grip on the superannuation rules, they change again. This time though, the changes are mostly positive, especially for older super members keen to top up their savings.

From 1 July 2020, changes came into effect with the potential to help retirees as well as members suffering financial hardship due to the economic impacts of COVID-19.

If you are not working you may be able to contribute to super for longer, while couples can take advantage of spouse contributions for longer. The temporary reduction in minimum pension drawdowns remains in place, as does early access to super. And if you own a business, you have a brief window of opportunity to get up to date with your employees’ super payments without penalty.

Here’s a summary of the new rules.

Work test to kick in at 67

Under changes to the work test, if you are aged 65 or 66 you can now put money into super even if you aren’t working. This gives people flexibility to make voluntary catch-up contributions for a few more years and give their retirement savings a last-minute boost.

Say you are 65 and inherit some money. You can now make a voluntary non-concessional contribution to your super account up to the annual limit of $100,000, even if you are not currently working enough hours to satisfy the work test. You can make withdrawals from this money or start a super pension.

Under the work test, which now kicks in at age 67, you must work at least 40 hours within 30 consecutive days in the financial year in which you make the contribution.

It was also proposed to allow people aged 65 and 66 at the start of the financial year to use the existing non-concessional bring forward rules. If eligible, this allows you to ‘bring forward’ up to three years’ worth of non-concessional contributions (up to $300,000) in the current financial year. Legislation must be passed before this proposal becomes effective.

Couples get a super boost

Couples also have more flexibility to grow their retirement savings later in life, thanks to recent changes to spouse contributions. As of 1 July 2020, you can contribute to your spouse’s super fund until they reach age 75, up from the previous age limit of 70.

What’s more, if your spouse (married or de facto) earns less than $37,000 you may be able to claim a tax offset of up to $540 for your contribution to their super. The offset phases out once your partner’s income reaches $40,000.

The usual non-concessional contribution limits still apply, and the receiving spouse still needs to meet the work test where applicable (outlined above).

Super pension drawdowns halved

Retirees whose superannuation has taken a hit from the COVID-19 market volatility have also been given a bit more wriggle room this financial year. The government has temporarily halved the minimum amount retirees must withdraw each financial year from their account-based super pension.

This temporary measure will help retirees who might otherwise have to sell assets at depressed prices to provide cash for their pension payments.

For example, someone aged 65 would normally be required to withdraw 5 per cent of their super pension account balance each financial year. But in 2020-21 they need only withdraw 2.5 per cent of their account balance if they wish. The minimum drawdown rate increases gradually with age, reaching 7 per cent from age 95 under the temporary rules (normally 14 per cent), as you can see in the table below. There is no maximum withdrawal rate.

Table 1: Minimum pension drawdown rates (as a percentage of your super pension account balance)

Age of beneficiaryTemporary withdrawal rate
2019-20 and 2020-21
Normal withdrawal rate
Under 652%4%
65 to 742.5%5%
75 to 793%6%
80 to 843.5%7%
85 to 894.5%9%
90 to 945.5%11%
95 and older7%14%

Source: ATO

Early release of super

Younger super fund members have not been forgotten. You can withdraw up to $10,000 from your super account this financial year if you are suffering financial hardship due to the economic impact of COVID-19. This is in addition to the $10,000 you could withdraw last financial year.

It must be stressed though, that the early withdrawal of your super should be a last resort because of the adverse impact on your retirement savings. An amount of $10,000 withdrawn early in your working life could potentially be worth many times that by the time you retire.

If, after weighing up your financial options, you wish to take advantage of this temporary measure the application period has recently been extended to 31 December 2020.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.