AMP Technical Strategy Manager, John Perri summarises the key announcements from the budget relating to superannuation:
Repealing the work test for non-concessional and salary sacrificed 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 meet the ‘work test’, (i.e. have worked at least 40 hours over a 30 consecutive day period in the relevant financial year) or are eligible to contribute under the recent retiree work test exemption.
From 1 July 2022, the Government will allow individuals aged 67 to 74 (inclusive) to make or receive non-concessional superannuation contributions or salary sacrificed contributions without meeting the work test, subject to existing contribution caps. These individuals will also be able to access the non-concessional bring forward arrangement, subject to meeting the relevant eligibility criteria.
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.
Extending access to downsizer contributions
Currently, downsizer contributions to super can only be made by individuals age 65 or older. The Government is proposing to lower this age from 65 to age 60. All other eligibility criteria for downsizer contributions remains unchanged.
It should be remembered that downsizer contributions do not count toward an individual’s non-concessional contribution (NCC) cap. Individuals under age 65 may also be able to trigger a 3-year bring-forward NCC cap subject to their Total Superannuation Balance. This could potentially result in super contributions of up to $630,000 being made by an individual when combining their NCC cap and a downsizer contribution (where eligible to do so).
Temporary opportunity to exit from certain legacy retirement products
The Government will provide a temporary, two-year opportunity for individuals to transition from existing legacy retirement products to newer, more flexible products.
Legacy products include market-linked (Term Allocated Pensions – TAPs), life-expectancy and lifetime pension and annuity products commenced with any provider (including SMSFs), but exclude Flexi-pension products or a lifetime product in a large APRA-regulated or public sector defined benefit scheme.
Currently, these legacy products can only be converted into another like product. Limits apply to the allocation of any associated reserves to avoid counting towards an individual’s contribution caps.
Retirees will be able to exit these legacy products by fully commuting the product and transferring the underlying capital, including any reserves, back into a superannuation fund account in the accumulation phase. From there, they can decide to either commence a new retirement product, take a lump sum benefit, or retain the funds in that account.
The two-year period provided for the commutation will have effect from the first financial year after the passage of the enabling legislation. It will not be compulsory for individuals to move out of legacy retirement products.
The existing social security treatment that applies to the legacy product will not transition over to the new product commenced with commuted funds. Further, exiting a product will not cause re-assessment of the social security treatment of the product for the period before conversion.
Existing rules for income streams will continue to apply so that individuals starting a new retirement product will be limited by the transfer balance cap rules. The existing transfer balance cap valuation methods for the legacy product, including on commencement and commutation, continue to apply.
Any commuted reserve amounts will not be counted towards an individual’s concessional contribution cap but will be taxed as an assessable contribution of the fund.
Superannuation Guarantee (SG) – abolishing the $450 per month threshold
The current $450 per month minimum income threshold before SG contributions become payable will be removed. This means employees at all income levels will receive SG contributions.
Relaxing residency requirements for SMSFs
The Government is proposing to relax the residency requirements for self-managed superannuation funds (SMSFs) and small APRA-regulated funds (SAFs) by:
- Extending the central management and control test safe harbour from two to five years for SMSFs and;
- Removing the active member test for both SMSFs and SAFs.
These measures would provide SMSF and SAF members with greater flexibility to retain, and continue to contribute to, their existing fund while being temporarily overseas.
Early release of super for victims of family/domestic violence
The Government has indicated that it will not proceed with the proposal to extend early release of superannuation to victims of family and domestic violence.