Federal Budget 2021-22 update

This year’s Budget focuses on initiatives to maintain and grow Australia’s post-pandemic economic recovery.

It includes several proposed changes to super, though most of these proposals are changes to existing super measures.

Here’s a summary of the major proposed changes and what they mean for your super.

Key proposed changes to super and pension accounts:

• removal of $450 monthly income threshold for super contributions
• lower age threshold for super downsizer scheme
• higher withdrawal limit for First home super saver scheme
• removal of super contribution ’work test’ for those aged between 67 and 74
• transfer of unclaimed super to KiwiSaver accounts
• legacy product conversions
• Pension Loan Scheme – no negative equity guarantee.

Note: these proposed changes need to be made law before they come into effect.

For super members

Removal of $450 monthly income threshold

Currently, you only get paid super if you earn more than $450 in a calendar month. The government will remove this threshold to help low paid workers receive mandatory super. It’s estimated that 300,000 low paid workers — 63% who are female — will benefit from this change.

Impact to you: this means if you earn less than $450 a calendar month you’d be eligible for super.

Proposed start date: 1 July 2022 

New threshold for First home super saver scheme

The government will increase the amount you can put into your super to save for your first home.

Currently, you can make voluntary contributions of up to $15,000 a year and $30,000 in total into super to save for a first home.

The government will increase this amount to $50,000 in total.

Impact to you: The amount of money you contribute to your first home can be increased and this is consistent with the increased cost of housing.

Proposed start date: 1 July 2022

Learn more about First home super saver scheme

Work test abolished for those aged between 67 and 74 years

The government will abolish the work test for those aged between 67 and 74 who want to make concessional or non-concessional contributions into super.

Currently, if you’re aged 67 to 74, you must work for at least 40 hours over 30 consecutive days during the financial year before you can contribute to super.

Removing the work test will allow people aged 67 to 74 years to make super contributions regardless of how many hours they work.

Individuals aged 67 to 74 will still need to meet the work test to make personal deductible contributions.

The existing $1.6 million cap on lifetime super contributions will also continue to apply (increasing to $1.7 million from 1 July 2021), as too will the annual concessional and non-concessional caps.

Impact to you: If you’re 67-74 and aren’t working you can make a contribution to your super.

Proposed start date: 1 July 2022

Transfer of super to the KiwiSaver scheme

From 2021-22, the government will provide $11.0 million over four years (and $1.0 million per year ongoing) to the Australian Taxation Office (ATO) to administer the transfer of unclaimed super directly to KiwiSaver accounts (the New Zealand equivalent of Australian super funds).

Proposed start date: 1 July 2021

For pension members

New age threshold for downsizers

Retirees who downsize their family home will be able to contribute $300,000 to super ($600,000 for couples) at age 60, down from 65.

Downsizer contributions are non-concessional (after-tax). They’re in addition to existing super rules and caps, including the total super balance cap of $1.6 million (to rise to $1.7 million on 1 July).

Impact to you: This allows members to make downsizing contributions earlier.

Proposed start date: 1 July 2022

Legacy product conversions

Over two years, people locked into legacy retirement products will have the option to transfer into more flexible financial products without penalty.

Throughout this period, individuals can exit their existing market-linked, life-expectancy and lifetime pension and annuity products and transfer into an accumulation product with a super fund. They can then decide if they want to stay in that super fund, take a lump sum benefit or move to a new retirement product.

The transferred capital won’t count towards the concessional contribution cap and won’t trigger excess contributions. However, it will be taxed as an assessable contribution of the fund (at %15).

Products covered include market-linked, life-expectancy and lifetime products which commenced before 20 September 2007 from any provider, including self-managed superannuation funds (SMSFs).

Products NOT covered are flexi-pension products offered by any provider and lifetime products offered by large APRA-regulated defined benefit schemes or public sector defined benefit schemes.

Impact to you: If you’re locked into a retirement product, you may be able to transfer into accumulation products and enjoy greater flexibility.

Proposed start date: 1 July 2022

Pension Loans Scheme

The Pension Loans Scheme will become more flexible. Under proposed changes, participants will be able to access up to 26 fortnights’ worth of top-up payments as a lump sum, and there will a ‘no negative equity guarantee’. This will provide immediate access to lump sums of around $12,000 for singles and $18,000 for couples.

The no negative equity guarantee means borrowers under the Pension Loans Scheme (or their estate) will never owe more than the market value of their property. This brings the Pension Loans Scheme in line with private-sector reverse mortgages.

Impact to you: You can access a lump sum advance payment and will never owe more than the value of your property.

Proposed start date: 1 July 2022

Previous Budget measures to come into effect on 1 July 2021

Your Future Your Super changes

The Your Future Your Super measures proposed in last October’s budget are scheduled to come into effect on 1 July 2021.

These changes include measures to ‘staple’ everyone to their current fund and to apply performance testing to many super funds.

This legislation is currently before Parliament. The final scope of the proposed reforms and their implementation date isn’t yet known.

New cap thresholds

The thresholds for several existing super measures will increase from 1 July 2021. This includes increases to how much you can voluntarily contribute to super through salary sacrifice or non-concessional contributions.

The key super rates and thresholds changing on 1 July 2021 are:

• the concessional contributions cap is $27,500, up from $25,000
• the non-concessional contributions cap is $110,000, up from $100,000
• the general transfer balance cap is $1.7 million, up from $1.6 million.

Impact to you: You can now contribute more to your super before exceeding the contributions cap.