The new financial year will see a raft of laws and scheduled changes coming into force impacting everything from extra super contributions, through to the age you can access the pension and the introduction of a government-funded reverse mortgage option for self-funded retirees.
AMP Technical Strategy Manager John Perri explains how the key policy changes work and what they mean for Australians.
Summary of key changes:
- Pension age increases to 66
- ‘Work bonus’ for eligible pensioners gets a boost
- Self-funded retirees and pensioners now able to access a government-funded reverse mortgage on their homes
- Protect Your Super laws come into force
- The age Australians can access their super increases to 58
- Eligible Australians now able to contribute more to super using ‘catch up’ rules
- Relaxation of the ‘work test’ for eligible retirees to help them contribute more to super
Pension age increase to 66
Australians born between 1 January 1954 and 30 June 1955 will now have to wait until they turn 66 before they can receive the age pension. This is part of an ongoing schedule to increase the age pension to 67 by 1 July 2023.
The maximum rate for the Age Pension, including supplements, is currently $926.20 for a single person per fortnight. If you are a couple, the rate is $698.10 each per fortnight.
The ‘work bonus’, which aims to encourage people who’ve reached pension age to continue doing some paid work, is getting a boost.
Currently, eligible pensioners can earn a $250 per fortnight before their pension is impacted.
From July 1, this will be increased to $300. That means, a single pensioner can earn a maximum of $474 per fortnight ($300 from employment, $174 from other income) before their pension payments are reduced. The self-employed, like sole traders, will now also be able to apply for the ‘work bonus’ for the first time.
Government reverse mortgages for retirees
The revamped Pensioners Loan Scheme allowing retirees to boost their income through a reverse mortgage on the family home is about to come into effect in the new financial year.
The enhanced Pensioners Loan Scheme will now be open to full aged pensioners and selffunded retirees. Previously only eligible pensioners were able to access the scheme.
AMP modelling shows a self-funded retiree will now be able to borrow up to a maximum $36,000 per year and a self-funded retiree couple could potentially borrow up to a maximum $54,000 per year, paid in fortnightly instalments.
New means testing rules for new lifetime income streams commence
From 1 July 2019 retirees will have more options when it comes to starting a lifetime income stream.
In addition to immediately payable lifetime annuities, retirees can also purchase a ‘deferred lifetime annuity’, which will pay them an income for life from a designated age in the future.
The Centrelink means tests have been revised to accommodate this development, and the big change is that asset-tested retirees may benefit from a 40 per cent asset test discount if they commence a lifetime income stream from 1 July 2019.
Lifetime income streams may not be the right strategy for everyone. It is important to weigh up your personal circumstances or seek professional advice.
Protect Your Super laws
New rules called the Protecting Your Superannuation (PYS) package are about to take effect.
The key changes include low balance and inactive superannuation accounts being transferred to the Australian Tax Office (ATO), fee caps on certain balances under $6,000, the banning of exit fees and insurance cover being automatically switched off on super accounts that have been inactive for 16 months or more, unless members opt to retain it.
Preservation age increases to 58
The age you can access your super, known as the preservation age, is on the way up. Individuals turning 57 between 1 July 2019 and 30 June 2020 will have to wait until age 58 (from 1 July 2020) to access their super.
This will also delay the start of accessing the popular Transition to Retirement Pension, where you can access up to 10 per cent of your super as an income stream, to combine with paid work.
Playing catch up with your super
For the first time, if your total super balance is below $500,000 at 30 June 2019, the government is allowing you to play super catch up. That means you can potentially contribute more of your pre-tax income to super.
The concessional contributions (pre-tax) cap is currently set at $25,000 per year. From July 2018, if you only contribute, for example $10,000 to super, you are now allowed to carry the unused $15,000 forward into the following year. And it doesn’t end there. You can continue rolling over the unused portion of your contributions cap for up to five years.
From 1 July 2019, you can use the unused concessional cap from the previous year. Using the example above, if you have unused cap of $15,000, you can contribute up to $40,000 in 2019- 20 as a concessional contribution. This will reduce your taxable income.
Relaxation of the ‘work test’ for eligible recent retirees
This is the first-year eligible retirees aged 65 to 74 with a super balance below $300,000 (as at 30 June 2019) will be able to make voluntary super contributions for 12 months from the end of the financial year in which they last met the work test.
Currently, to make voluntary super contributions you must work a minimum of 40 hours in any 30-day period in a financial year.
The reason some people make voluntary super contributions at this stage is often to take advantage of the generous tax conditions within super and potentially increase their retirement balances. However, this may not be the right strategy for everyone.
Before making a financial decision, weigh up your personal circumstances and consider professional advice where appropriate.
About John Perri
John Perri is one of Australia’s foremost experts on superannuation, with over three decades experience navigating complex superannuation rules and regulations. As AMP’s leading technical super manager John helps break down complex super law into a language, we can all understand. John’s aim is to educate Australians about the importance of engaging with their super to help build a better retirement.