Reaching age 65 has always been a pivotal time when it comes to superannuation and retirement planning.
All of a sudden, people met the automatic age-based condition of release to access preserved super benefits (no matter an individual’s work practices or intentions), and had to consider things like the requirements, and indeed complications of, meeting things like the “work test” in order to make additional voluntary contributions to super.
However, no longer will this age be a hard finish when it comes to final contribution planning as someone approaches, or indeed enters retirement.
If legislated as announced in last year’s Federal Budget, from 1 July 2020, Australians under the age of 67 will be eligible to make voluntary super contributions without needing to meet the “work test”.
Also, the recent confirmation that there will be no indexation of the $1.6 million superannuation caps from 1 July 2020, but the almost guarantee of an increase from 1 July 2021, firmly places the spotlight on ensuring that contribution strategies for this financial year are carefully planned and managed to maximise the potential to boost to your super.
So what do you need to consider with these latest adjustments to the super playing field?
Under current rules, a work test requirement applies in order to make voluntary contributions to super after turning 65, and until reaching age 75.
Generally, the work test requires gainful employment on at least a part-time basis during the financial year in which the contributions are made. FYI, you’re considered gainfully employed if you worked part-time for at least 40 hours over not more than 30 consecutive days in that financial year.
However, here’s some good news for those that might not meet the test.
Since 1 July 2019, additional contribution eligibility criteria now allows someone who has not been gainfully employed, either full-time or a part-time, to still make a voluntary super contribution where all of the following requirements are satisfied:
– you meet the work test in the financial year immediately prior to the year of the contribution, and
– you have a total super balance of less than $300,000 at the end of the previous financial year, and
– you have not previously used the work test exemption in a previous financial year to make a contribution to any regulated super fund.
But take note – once used, the work test exemption opportunity cannot be used in a subsequent financial year. However, if you do qualify to use it, but choose not to contribute in that particular year, it may remain available for another year.
Looking ahead, the work test deferral would mean that from 1 July 2020, the requirement to meet the test to make a voluntary contribution to super will not apply until you are 67 – a two-year deferral.
As a result, it is also proposed to extend eligibility for the three year bring-forward rule around non-concessional contributions to the year in which a members turns 67, and also extend the time frame for the receipt of spouse contributions to age 75. But be alert – whilst the need for the receiving spouse to be working to receive a spouse contribution will also move out to age 67 (if legislated), the work test exemption is not available for the receipt of a spouse contribution.
While these changes seem relatively straight forward for those in the industry, financial advisers and super members will need to carefully navigate through the flow on opportunities and considerations, both for this year and next.
So, the age-old question: how much should be contributed this financial year?
The answer is, as always, “it depends”.
It relies on several factors, such as the potential ability to contribute in future years, and the availability of funds to make a contribution. Timing can also be important.
But what is clear is staying on top of the latest tinkers to our world-class super system at a time of low interest rates and heightened market uncertainty remains as important as ever.
This is an edited version of an article that was first published in Money Management.
The information in this article is general information only, it does not constitute any recommendation or advice; it has been prepared without taking into account your personal objectives, financial situation or needs and you should consider its appropriateness with regard to these factors before acting on it. Any taxation position described is a general statement and should only be used as a guide. It does not constitute tax advice and is based on current tax laws and our interpretation. Your individual situation may differ and you should seek independent professional tax advice. You should also consider obtaining personalised advice from a professional financial adviser before making any financial decisions in relation to the matters discussed.