Super Strategies 2022

About the author:

Terri Bradford
Author name:
By Terri Bradford
Job title:
Head of Wealth Management
Date posted:
23 March 2022, 11:00 AM

Regulations have now been registered for the legislated amendments to superannuation rules as part of the ‘Enhancing Superannuation Outcomes’ Bill. We take a look at potential strategies as a result of the changes from 1 July 2022.

pexels-elly-fairytale-3807571-Family Source: Elina Fairytale, Unsplash

The Changes

The Enhancing Superannuation Outcomes Bill contains the following measures:

• Removing the $450 monthly minimum threshold for salary or wages to count towards the superannuation guarantee

• First home super saver scheme maximum releasable amount

• Reduced eligibility age for downsizer contributions

• Repealing the work test for superannuation contributions

The Strategies

Removing the monthly minimum threshold of $450

The $450-a-month threshold before an employee’s salary or wages count towards the super guarantee will be removed. This will expand the coverage of SG payments for eligible employees earning salary or wages that are less than $450 in a calendar month from an employer. A win for casual and part-time employees, particularly younger Australians and women, who have inconsistent work hours.

First home super saver scheme

The maximum amount of voluntary contributions made over multiple financial years that are eligible to be released under the First Home Super Saver Scheme will increase from $30,000 to $50,000. The amendment does not alter the limit on the amount of voluntary contributions from any one financial year that are eligible to be released. That is, the amount of eligible contributions that can count towards the FHSS maximum releasable amount for each financial year will remain at $15,000.

Being able to withdraw a higher total amount from superannuation as a deposit for a first home will no doubt create more interest from young people saving for a house, albeit the savings could be over a longer period given the annual maximum eligible contribution limit remains at $15,000.

Refer to our technical note “First Home Super Savers Scheme” dated March 2022 for a more detailed overview of the FHSSS and how the scheme works in practice.

Reduced eligibility age for downsizer contributions

The amendments allow individuals aged 60 and above to make downsizer contributions to their super from the proceeds of selling their home. This provides greater flexibility for older Australians to contribute to their super. However, unless the individual meets a nil cashing condition of release, funds must be preserved within the super account until such time he or she can meet a condition of release. Age 65 is an automatic condition of release; age 60 is not. Section 292-102(1)(a) will be amended via regulations to allow for the reduction in age for this type of contribution to super.

Used in conjunction with a standard non-concessional contribution strategy, a single person or a couple can inject more into their superannuation prior to actual retirement. For example, a single person may be able to contribute up to $630,000 into super from age 60, which would include the maximum 3-year non-concessional contribution (NCC) limit of $330,000. For a couple, it means up to $1.26 million combined could be contributed. The ability to contribute the downsizer contributions earlier at age 60, in addition to the maximum bring forward amount of $330,000 NCC, can make a significant difference to achieving retirement goals.

See our technical note “Downsizing Incentive for Seniors” dated March 2022 for more information on how the downsizer contribution rules work, particularly in relation to the Transfer Balance Cap and Centrelink issues.

Repealing the work test for super contributions

The Bill amends the ITAA 97 to allow individuals aged between 67 and 75 years to make salary sacrifice contributions to super without having to meet the 40-hour work test. The Bill also amends the ITAA 97 to allow individuals to make or receive non-concessional contributions (including under the bring forward rule).

Individuals aged between 67 and 75 who wish to make personal deductible contributions to super will still be required to meet the 40-hour work test. If an individual makes a deductible contribution and is unable to meet the work test or access the ’12-month exception’ rule, the contribution will remain a non-concessional contribution on the basis that no deduction can be claimed for it.

The 28-day rule will still apply for individuals turning age 75. That is, the contribution must be received into the super account on or before the day that is 28 days after the end of the month in which the member turns 75. If a person who is over age 75 makes a contribution within 28 days after the month in which they turned 75, there is no requirement to meet the work test.

The amended SIS Regulations state all member contributions that are non-deductible will be captured under this change. This means small business CGT contributions, spouse contributions and government co-contributions can be made without having to meet the work test if the individual is over age 67, up to age 75.

Retiring individuals can also continue using the 12-month ‘work test exemption’ window if total super balance is less than $300,000 as at the previous 30 June, and the person was gainfully employed for at least 40 hours over a consecutive period of 30 days during the previous financial year.

The amendment to the bring forward provision provides clarity that a person aged 74 with a total super balance of less than $1.48 million as at the previous 30 June can contribute up to $330,000 prior to attaining age 75.

Strategy - Transfer Balance Cap

The ability to contribute into super without meeting a work test means couples may be able to equalise their super fund balances where one spouse is close, to or in excess of, his/her personal transfer balance cap.

For example, Rob and Susan are both age 70 and retired. Rob’s transfer balance cap (TBC) is $1.6 million as he has used his entire cap when he commenced his account-based pension in 2019, which is now worth $1.75 million. Susan has $900,000 in her pension account, with a proportionate transfer balance cap of $1.65 million (commencing a new pension when she retired of $800,000 in 2019). As a potential strategy, Rob could withdraw $330,000 from his pension account, which will be a debit against his TBC. This leaves him with a personal TBC of $1,270,000 and now under his personal TBC. Susan can contribute this $330,000 into her super fund (accumulation account) using the 3-year bring forward and immediately commence a second pension. The new pension will be a credit against her TBC, bringing her personal TBC up to $1.13 million.

Rob will have $1.42 million in his existing account-based pension (includes the growth value of his pension).

Susan will now have $1.23 million in two separate account-based pensions (includes the growth value of her original pension).

Transfer Balance Cap Equalisation Strategy

 Description Debit Credit Personal TBC Balance TBC
Highest ever transfer balance cap (commencement of ABP in 2019)   $1,600,000  $1,600,000 $0,000
Lump sum withdrawal $330,000   $1,270,000 $330,000
Highest ever transfer balance cap (commencement of ABP in 2019)
   $800,000 $1,650,000 $850,000
Lump sum withdrawal    $330,000 $1,130,000 $520,000

As Susan has a higher proportionate transfer balance due to the indexation of the cap from 1 July 2021 to $1.7 million, she can benefit from the withdrawal and recontribution strategy as shown above. By equalising their pensions to a degree, it may help simplify available estate planning strategies should one of them pass away.

Strategy - Total Super Balance

If we look at Rob and Susan’s situation from a total super balance perspective, assume they have not yet commenced their pensions so have not yet triggered their personal transfer balance caps. The indexed transfer balance cap is $1.7 million.

Rob’s super account balance is $1.75 million, and Susan’s is $900,000. Rob is currently just over the cap so if he wanted to commence an account-based pension he would have to retain $50,000 in the accumulation account, or he could withdraw it as a lump sum benefit payment.

Again, if we consider how we could equalise their accounts somewhat using the withdrawal and recontribution strategy, Rob could withdraw $330,000 and re-contribute this amount into Susan’s accumulation fund. This leaves Rob with $1.42 million to commence a pension, leaving him with $280,000 remaining as a balance against his TBC. Susan commences a new pension with her total balance, which is now $1.23 million. Susan has $470,000 remaining against her personal TBC.

Both strategies are now available from 1 July 2022 to Rob and Susan, who are retired and cannot meet a work test. They, and many other retirees over age 67, can now consider eligible contribution strategies that may enhance their overall retirement and estate planning situation.

Strategy – Gordon, age 74 years

Gordon is 74 years of age, turning 75 in September 2022. He currently has $485,000 in an account-based pension. He recently sold an investment property and has $310,000 available (after tax) that he would like to put into superannuation. Under current 21/22FY rules he is not able to contribute into super as he is retired and cannot meet the work test.

From 1 July 2022, however, Gordon can contribute the entire sum of $310,000 using the 3-year bring forward rule. Even though he is 74, and technically would not be able to contribute after age 75 regardless, the amended SIS Regulations allow him to fully utilise the 3-year cap of $330,000. His total super balance is well under the $1.7 million limit as at 30 June 2022.

If Gordon had $1.485 million in total in super as at 30 June 2022, however, he would be limited to contributing only $220,000 of the available $330,000 bring forward cap. Balances over $1.48 million up to $1.59 million reduce the available limit to $220,000.

Gordon has until 28 October 2022 to make his non-concessional contribution. This is based on the ’28 day’ rule for those over age 75. That is, a person turning age 75 in a month has 28 days after the end of that month to contribute into super. Gordon’s 75th birthday is in September, so 28 days after the month of September is 28 October 2022.

In Closing

The changes to superannuation are very welcome for retirees over age 67 up to age 75. The ability to contribute personal (non-deductible) contributions from 1 July 2022 will no doubt make a big difference to many individuals and couples in that age bracket.

Small business operators who have sold their business in the previous financial year may also be able to take advantage of the changes and contribute proceeds of business asset sales into superannuation. Always speak to your accountant and/or financial adviser in the first instance.

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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