This article was written by Andrew Fong
The Budget introduces key changes to the First Home Super Saver Scheme and the minimum income threshold for superannuation guarantee eligibility. Further measures aim to give older Australians greater flexibility to contribute to their superannuation and access their housing wealth.
First Home Super Saver Scheme — increasing the maximum releasable amount to $50,000
The Government has announced its intention to increase the maximum releasable amount of voluntary concessional and non-concessional contributions under the First Home Super Saver Scheme from $30,000 to $50,000. Voluntary contributions made from 1 July 2017 up to the existing limit of $15,000 per year will count towards the total amount able to be released.
The increase in maximum releasable amount is expected to apply from 1 July 2022.
Removing the $450 per month threshold for superannuation guarantee eligibility
The Government will remove the current $450 per month minimum income threshold, under which employees are not entitled to superannuation guarantee contributions. The measure is intended to promote the retirement savings of lower income earners, and is expected to have effect from 1 July 2022.
Super Guarantee: no change to legislated rate rise to 10% for 2021-22
The Budget did not announce any change to the timing of the next Super Guarantee rate increase. The Super Guarantee rate is currently legislated to increase from 9.5% to 10% from 1 July 2021, and by 0.5% per year from 1 July 2022 until it reaches 12% from 1 July 2025.
Flexible Super — reducing the eligibility age for downsizer contributions
The downsizer contribution allows individuals to make a one-off, post-tax contribution to their superannuation of up to $300,000 per person (or $600,000 per couple) from the proceeds of selling their home. Both members of a couple can contribute in respect of the same home, and contributions do not count towards non concessional contribution caps.
The Government will reduce the eligibility age to make downsizer contributions into superannuation from 65 to 60 years of age. The measure is expected to have effect from 1 July 2022.
Flexible Super — repealing the work test for voluntary superannuation contributions
Currently, individuals aged 67 to 74 years can only make voluntary contributions (both concessional and non-concessional) to their superannuation, or receive contributions from their spouse, if they are working at least 40 hours over a 30 day period in the relevant financial year.
The Government will allow individuals aged 67 to 74 years (inclusive) to make or receive non-concessional (including under the bring-forward rule) or salary sacrifice superannuation contributions without meeting the work test, subject to existing contribution caps. Individuals aged 67 to 74 years will still have to meet the work test to make personal deductible contributions. The measure is expected to have effect from 1 July 2022.
The existing $1.6 million cap on lifetime superannuation contributions will continue to apply (increasing to $1.7 million from 1 July 2021).
Self managed Superannuation Funds — legacy retirement product conversions
The Government will allow individuals to exit a specified range of legacy retirement products, together with any associated reserves, for a two-year period. The measure will have effect from the first financial year after the date of Royal Assent of the enabling legislation. The measure will include market-linked, life-expectancy and lifetime products, but not flexi-pension products or a lifetime product in a large APRA-regulated or public sector defined benefit scheme.
Currently, these products can only be converted into another like product and limits apply to the allocation of any associated reserves without counting towards an individual’s contribution caps.
This measure will permit full access to all of the product’s underlying capital, including any reserves, and allow individuals to potentially shift to more contemporary retirement products.
Social security and taxation treatment will not be grandfathered for any new products commenced with commuted funds and the commuted reserves will be taxed as an assessable contribution of the fund (with a 15% tax rate).
Increasing the Flexibility of the Pension Loans Scheme
The Government will provide $21.2 million over four years from 2021-22 to improve the uptake of the Pension Loans Scheme by:
- allowing participants to access up to two lump sum advances in any 12 month period, up to a total value of 50% of the maximum annual rate of the Age Pension. Based on current Age Pension rates, this is around $12,385 per year for singles, while couples combined could receive around $18,670;
- introducing a No Negative Equity Guarantee so borrowers will not have to repay more than the market value of their property; and
- raising awareness of the Pension Loans Scheme through improved public messaging and branding.
Self managed Superannuation Funds — relaxing residency requirements
The Government will relax residency requirements for self-managed superannuation funds (SMSFs) and small APRA-regulated funds by extending the central control and management test safe harbour from two to five years for SMSFs, and removing the active member test for both fund types.
The measure is expected to have effect from 1 July 2022.
Stronger Consumer Outcomes for Members of Superannuation
The Government will provide $11.2 million over four years from 2021-22 (and $3.1 million per year ongoing) to support stronger consumer outcomes for members of superannuation funds by providing:
- $9.6 million for the Australian Prudential Regulation Authority to supervise and enforce increased transparency and accountability measures as part of the Government’s Your Future, Your Super reform; and
- $1.6 million to Super Consumers Australia to support stronger consumer outcomes on behalf of superannuation fund members.
The funding for this initiative will be partially met through an increase in levies on regulated financial institutions.