How Will the Latest Superannuation Changes Affect Your Finances?

The new financial year brings significant changes to Australia’s superannuation rules. From the Superannuation Guarantee increase to changes in pension drawdowns, here’s an overview of what you need to know.

As our superannuation balances increase, staying abreast of the evolving rules and regulations becomes increasingly important.

Super bonus for workers

For employees, the dawn of the new financial year brings an uplift in the Superannuation Guarantee contributed by employers. It is now 11 per cent of eligible wages.

This rate will increase by 0.5 per cent each year until it reaches 12 per cent in 2025.ⁱ

The Australian Tax Office will also be cracking down on employers who don’t pay on time or at all.

Minimum pension drawdown increased

The COVID-19 measure that reduced the minimum drawdown on super pensions is set to conclude on 1 July 2023.

Investors receiving super pensions and annuities must withdraw a minimum amount each year. The federal government reduced this amount by 50 per cent over the last four financial years to help those wanting to protect their capital as the markets recovered from the chaos of the pandemic.

You can find out more by visiting the ATO’s minimum pension standards.

Transfer balance cap to be lifted

From 1 July 2023, the cap on capital that can be transferred into your super pension will rise to $1.9 million.ⁱⁱ

The transfer balance cap limits the total amount of super that can be transferred into a tax-free pension account. This is a lifetime limit.

The cap is indexed and began at $1.6 million when it was introduced in 2017. Increases in the cap are tied to CPI movements.

Extra tax for large balances

Investors holding super balances exceeding $3 million will no longer enjoy the full benefits of super tax breaks on their earnings.

From 1 July 2025, taxes on future earnings will be 30 per cent instead of 15 per cent although they will continue to benefit from more generous tax breaks on earnings from the funds below the $3 million threshold.

Other recent changes

A number of changes announced in both federal budgets last year have also been slowly introduced over the past 12 months.

A significant change has been the reduction in the minimum age for those eligible to invest a portion of their home sale proceeds into their super, a move known as a ‘downsizer contribution’.

From 1 January 2023, if you are aged 55 or older, you can now contribute to your super up to $300,000 (or $600,000 for a couple) from the sale of their home.

The home must be in Australia and owned by you for at least 10 years.

Another significant reform for many has been the removal of the work test for those under 75, who can now make or receive personal super contributions and salary sacrificed contributions. (Although the ATO notes that you may still need to meet the work test to claim a personal super contribution deduction.)

Previously if you were under 75, you could only make or receive voluntary contributions to super if you worked at least 40 hours over a 30-day period.

While caps have been lifted and programs expanded, at least one scheme has not changed. The Low Income Super Tax Offset (LISTO) threshold remains at $37,000. LISTO is a government payment to super funds of up to $500 to help low-income earners save for retirement.

If you earn $37,000 or less a year you may be eligible a LISTO payment. You don’t need to do anything other than to ensure your super fund has your tax file number.

Lastly, a promising initiative that could yield future benefits is the Federal Budget’s continued funding for a superannuation consumer advocate, aimed at enhancing investor outcomes.

Expert advice is important to help navigate these changes over the coming year. Call us for more information.

i https://www.ato.gov.au/Business/Small-business-newsroom/Lodging-and-paying/The-super-guarantee-rate-is-increasing/
ii https://www.ato.gov.au/Individuals/Super/Withdrawing-and-using-your-super/Transfer-balance-cap/

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.