The 2021 Federal Budget was handed down on Tuesday 11 May 2021 and some key issues around superannuation were announced that impact pensioners, self-funded retirees and those looking to retire soon.
Below is an explanation of three key changes and how they may impact you now or in the future.
Repealing the work test for voluntary superannuation contributions
Currently, individuals aged 67 to 74 can only make voluntary contributions (both concessional and non-concessional) to their superannuation or receive contributions from their spouse if they meet the “work test”.
The “work test” stipulates that you must have worked at least 40 hours over 30 consecutive days in the relevant financial year or are eligible to contribute under the recent retiree work test exemption.
From July 1, 2022 the government will allow individuals aged 67 to 74 (inclusive) to make or receive non-concessional superannuation contributions or salary-sacrificed contributions without meeting the work test (but they will still be subject to existing contribution caps).
Removing the requirement to meet the work test when making non-concessional or salary sacrifice contributions will simplify the rules governing superannuation contributions and will increase flexibility for older Australians to save for their retirement through superannuation.
This measure is estimated to result in a decrease in receipts of $30 million over four years, and an increase in payments of $3.7 million over four years.
Individuals aged 67 to 74 years will still have to meet the work test to make personal deductible contributions.
Reducing the eligibility age for downsizer contributions
From July 1, Australians aged over 60 will be able to make a one-off, post-tax contribution of up to $300,000 per person (or $600,000 per couple) to their super when they sell their home. Previously, this scheme was only available to people aged over 65.
These contributions are (mostly) exempt from caps placed on super contributions, and the scheme will allow empty-nesters to consider downsizing to a home that better suits their needs, thereby freeing up the stock of larger homes for younger families.
There is also something for older Australians who own their home and want to use some of the equity in it to boost their retirement income without selling up.
The government has tweaked its Pension Loans Scheme (PLS) to allow lump-sum payments, meaning eligible singles and couples could have almost $20,000 more per year.
Retirees who own their own homes can get their hands on some extra cash each week by borrowing against the value of their property — the balance of the loan is paid when the property is sold.
According to the Budget, eligible people will be able to receive a maximum lump-sum advance payment equal to 50 per cent of the maximum age pension, equating to around $12,385 for singles and $18,670 for couples.
Relaxing residency requirements for self-managed super funds
The Government will relax residency requirements for SMSFs and small APRA-regulated funds (SAFs) by extending the central control and management test safe harbour from two to five years for SMSFs.
The measure will have effect from the start of the first financial year after Royal Assent of the enabling legislation, which the Government expects to have occurred prior to 1 July 2022.
This measure will allow SMSF and SAF members to continue to contribute to their preferred superannuation fund whilst undertaking overseas work and education opportunities, ensuring parity with members of large APRA-regulated funds.
SMSF trustees living overseas will be able to maintain control of their funds for five years, up from two years previously, and the active member test will also be removed for both fund types.
If you would like to gain further insight into how the 2021 Federal Budget may impact you and your unique situation, please give us a call on 07 5606 6055.