Important changes to Australian super laws that could affect your retirement planning

Category: Australia & News & United Kingdom

In an article we published in August 2021, we told you about how changes to the super work test could help you maximise contributions to your super fund as you approach retirement. We also mentioned that further changes were on the way, with the prospect of them becoming law on 1 July 2022.

This legislation has now passed through both houses of the Australian parliament and will come into force from the above date.

As well as changes to the work test, the Bill implements several other changes to super funds that were put forward in the 2021/22 Budget.

You should be aware of these changes as they could affect your retirement planning. This particularly applies if you’re living, and intend to retire, in Australia. However, the changes could also have an impact if you’re living in the UK and have accrued funds in a super.

There is increased access to the bring-forward rule

“Bring-forward” allows you to pay up to three years previous non-concessional super contributions in one go.

This obviously gives you the opportunity to boost the value of your super fund with a large single payment, which can be particularly valuable as you approach your planned retirement date.

Up to now, you have had to be aged 67 or under at the start of a financial year to make non-concessional contributions under the bring-forward rule in that year.

Under the terms of the Bill, you can now make non-concessional super contributions under the bring-forward rule up to age 75, rather than age 67.

This means that you have an extra eight years in which you can utilise the bring-forward option – making a single contribution of up to $330,000 – and the changes give you more flexibility around your retirement planning.

Lowering the downsizer contribution age

If you’ve reached a certain age, you’re eligible to make a lump-sum contribution to your super from the proceeds of the sale of your property if you’re moving to a smaller residence – called the “downsizer contribution”.

The current age of downsizer eligibility is 65, but from 1 July 2022, this will reduce from 65 to 60.

The maximum downsizer contribution is $300,000 – which means you can make a combined contribution of $600,000 if both you and your spouse or partner contribute the maximum amount.

It also means that you could make an individual contribution of $660,000 – or a combined contribution of $1.26 million between you – if you combine downsizer contributions with the bring-forward rules and you meet the new age eligibility requirements.

The First Home Super Saver (FHSS) scheme maximum amount has been increased

First Home Super Saver (FHSS) is the facility that allows you to release funds from your super to purchase your first home.

The maximum release amount from 1 July 2022 will increase from $30,000 to $50,000 – plus a deemed earnings amount.

This could be particularly useful for your children or grandchildren, if they are working and saving up to buy their first property. It could also help you if you’ve recently moved to Australia from the UK and have only been renting up to now and are now looking to lay down permanent roots.

The super monthly income threshold has been removed

Currently, if you earn less than $450 in a calendar month, you aren’t eligible to receive super contributions from your employer.

From 1 July 2022, this threshold is being removed and your employer will have to pay super contributions on all earnings.

This could be relevant if you or your spouse or partner are working part-time in a job and your earnings don’t currently exceed the minimum amount.

Further changes to the work test requirements are still pending

Currently, if you’re aged 67 to 74, you must satisfy a work test (or qualify for a work test exemption) to top up the value of your super fund with voluntary contributions.

At the same time as they trailed the changes referred to above, in the May 2021 Budget, the government also announced they would be removing the work test for non-concessional contributions and salary sacrifice contributions from 1 July 2022.

This wasn’t included in the legislation recently passed, but the Treasurer, Josh Frydenberg, has indicated that they intend to do this by the end of the current Australian financial year on 30 June 2022.

The actual changes are still to be clarified, but it does look as though you’ll be able to make any super contributions from 1 July 2022 without work test requirements applying.

However, from 1 July 2022, the work test will still apply to personal tax-deductible contributions where a member is aged 67 to 74.

Once we have confirmation, we’ll let you have an update in a future newsletter article.

Get in touch

If you have any queries about your super and how you could be affected by the recent changes please get in touch with us.