How federal budget superannuation changes could increase your nest egg

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Employers will have to dish out more funds to pay millions of Australians’ higher compulsory superannuation under new changes announced in the federal budget.

And hundreds of thousands of Australians holding casual or part-time jobs are set to be paid superannuation on their wages for the first time.

There are also big changes in the budget for pensioners and self-funded retirees.

Here’s a wrap-up of the federal budget’s main changes to superannuation and how they will impact you.

Removal of the $450 minimum threshold

About 300,000 part-time workers — mostly women — are set to gain from this budget measure.

Under the current superannuation arrangements, if a person earns less than $450 per month from the one employer, they are not entitled to receive the superannuation guarantee.

For years, superannuation industry bodies and social welfare groups have been calling for the $450 rule to be scrapped to help people on lower incomes.

That’s now happened. For the first time, regardless of how much money you earn with any employer, you will be entitled to employer-paid superannuation.

About 300,000 people, or 3 per cent of employees — mainly young, lower-income, and part-time workers – will benefit from the removal of the $450 threshold.

According to the Retirement Income Review, the majority of those impacted by the threshold – about 63 per cent — are female.

“Removing the $450 a month threshold for SG (superannuation guarantee) payments would not materially improve retirement outcomes, but would improve equity of the system, particularly for women and lower-income workers,” the review says.

According to the budget papers, the change will cost just $4.8 million in 2022-23, rising to $13.8 million in 2024.

But the plan won’t come into force until the first financial year after Parliament approves the legislation. The government expects that will occur before July 2022.

Super Consumers Australia director Xavier O’Halloran says the $450 a month threshold is an “archaic rule from a paper-based era that left some people not receiving any super for the hours they worked every week”.

“It is an important change to make the superannuation system fairer,” Mr O’Halloran says.

Media, Entertainment & Arts Alliance chief executive Paul Murphy says the change will help thousands of workers in the entertainment and arts industries who juggle several casual or part-time jobs.

HESTA CEO Debby Blakey has also welcomed the end of the $450 rule but says the super system still has a “gender blind spot” that sees women retire with considerably less super than their male counterparts.

“The fact that super continues not to be paid on parental leave remains a glaring gap in our super system,” Ms Blakey says.

Chief Executive Women (CEW) president Sam Mostyn is calling on the federal government to continue to remove structural barriers to women’s workforce participation.

“There is scope to address other barriers to women’s workforce participation and economic security,” Ms Mostyn says.

She says measures could include applying the superannuation guarantee to paid parental leave and improving the paid parental leave scheme so it is accessible for either parent.

CPA Australia general manager external affairs Jane Rennie says the measure will “improve economic security in retirement for women, but it does little to address the underlying issue of wage inequality which drives the gender super gap”.

Rate of compulsory super to rise

The super guarantee — the proportion of wages that employers must contribute to their workers’ retirement savings — is legislated to increase half a per cent a year before reaching a final value of 12 per cent by 2025.

This means the superannuation guarantee rate will increase to 10 per cent from July 1, 2021 and rise by 0.5 per cent per year thereafter until it reaches 12 per cent by 2025.

Tax & Super Australia’s tax counsel John Jeffreys says by sticking to the legislated rise – despite some pressure to delay it from government MPs and economists – has “saved the government from facing an advertising campaign led by the industry super funds and unions in the run-up to an election”.

The changes are designed to allow older Australians to get more savings into their retirement funds.

“Australians are living longer, and as they arrive in their 60s many feel their super won’t last their lifetime,” Mr Jeffreys says.

Industry Super Australia chief executive Bernie Dean says employers and workers have “pulled the economy through a really tough year” and it is “good that Australians can bank on super going to 12 per cent”.

But he says it is “a real let down that the government didn’t take the opportunity to close the gender gap by getting super paid on paid parental leave”.

Association of Superannuation Funds of Australia (ASFA) chief executive Martin Fahy says the legislated increase of the superannuation guarantee will see a greater proportion of retirees relying less on the age pension and more on their retirement savings.

No more ‘work test’ for voluntary 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”.

That means they 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 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).

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.

Super downsizer contribution age change

There are also big changes in the budget for pensioners and self-funded retirees.

The downsizer contribution allows people to make a one-off, post-tax contribution to their superannuation of up to $300,000 per person from the proceeds of selling their home.

These contributions do not count towards non-concessional contribution caps, which are voluntary contributions into superannuation made out of an individual’s post-tax income.

Currently, downsizer contributions to super can only be made by individuals aged 65 or older. The government has proposed lowering this age to 60.

The federal government says in the budget papers: “The measure will allow more older Australians to consider downsizing to a home that better suits their needs, thereby freeing up the stock of larger homes for younger families.”

Dr Rennie says eliminating the work test “makes good sense”.

[“It] will give people greater flexibility to move in and out of the workforce as they transition to full retirement,” she says.

AMP’s technical strategy manager, John Perri, says: “It should be remembered that downsizer contributions do not count toward an individual’s non-concessional contribution cap.”

He says individuals under age 65 may also be able to trigger a three-year, bring-forward, non-concessional contribution cap subject to their total super balance.

“This could potentially result in super contributions of up to $630,000 being made by an individual when combining their non-concessional contribution cap and a downsizer contribution,” Mr Perri says.

The work test (or recent retiree work test exemption) will still have to be met by individuals aged 67 to 74 years wanting to make personal deductible contributions.

The government budget papers say the measure is “estimated to result in a negligible decrease in receipts over the forward estimates period”.

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First home buyers can save more through super

First home buyers can use up to $50,000 of their own contributions paid to their superannuation fund to help them get into the property market.

The First Home Super Saver Scheme was announced in the 2017-18 budget and allowed first home buyers to release use up to $30,000 of their voluntary contributions to use to purchase an owner-occupied property.

Under changes in the 2021-22 budget, up to $50,000 in voluntary contributions will be able to be released.

The measure is estimated to cost $25 million over four years.

Dr Rennie says the “existing scheme is poorly subscribed and this token increase is unlikely to help more Australians purchase their first home”.

Actuaries Institute president Jefferson Gibbs says the government is still yet to leverage the Retirement Income Review to “make more impactful changes to the retirement incomes system”.

He is calling for measures to help retired renters, saying they are “some of the most at risk of poverty in retirement”.

“The system also still lacks an overall objective for superannuation and its role in supporting retirement incomes,” he says.

Visibility of super assets in divorce settlements

Superannuation is considered a household asset, but after divorce or separation some women are walking away without their fair share.

This budget reform will make super balances visible in separation proceedings.

Super Consumers Australia director Xavier O’Halloran (whose group picked up some $1.6 million in funding over two years in the budget), says this is a “sensible initiative that will make it easier for partners to access their fair share of super after separation”.

“Too often women are unfairly missing out on an equal division of assets because partners have not been transparent about their super savings,” he says.

Relaxing SMSF residency requirements

The government is proposing to relax the residency requirements for self-managed superannuation funds (SMSFs) and small 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 be removed for both fund types.

The budget papers say the measure will allow SMSF and small APRA-regulated fund members to continue to contribute to their superannuation fund while temporarily overseas, ensuring parity with members of large APRA-regulated funds.

By business reporter Nassim Khadem (Original ABC Article)

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