Key super opportunities for 2022 and beyond
Significant advice opportunities have been created, particularly for older clients, as a result of the passing of 2021 Federal Budget super proposals as well as what was announced in the recent 2022 Federal Budget. We summarise the changes to help you navigate the new rules and highlight key client advice opportunities in 2022 and beyond.
Why super?
Super, for most of us, is a concessionally taxed investment. This means that returns on your super investments are generally taxed at a rate that is less than your marginal tax rate. Earnings are taxed at up to 15% in accumulation phase or 0% in retirement phase. This can make it a great option to boost your savings and overall wealth. Less tax = a higher after-tax return when compared to other wealth creation strategies
Opportunity #1: Extension of temporary reduction in superannuation minimum drawdown rates
In the 2022 Federal Budget, the government has announced a proposal for a 12-month extension of the temporary 50% reduction in superannuation minimum drawdown rates for account-based pensions and similar products to cover the 2022-23 income year. This will apply to:
- Account-based pensions and annuities
- Transition-to-retirement pensions
- Term allocated pensions and annuities (also known as market-linked income streams).
Halving the minimum drawdown rates was originally announced as part of the response to the Coronavirus pandemic. The government stated that even though Australia has entered a period of economic recovery, there is still significant volatility in financial markets due to the ongoing impacts of Coronavirus and the war in Ukraine.
Note: For the government to implement this proposal, it will only need to register a new regulation to amend the pension rules in the SIS regulations. Therefore, the government may be able to implement this change prior to the election being called. However, it’s unclear at this stage whether it intends to make the change prior to calling the election or whether it only intends to make the change if re-elected.
The remaining client opportunities relate to 2021 Federal Budget announcements that have recently been legislated. Individuals aged 67-741 will have greater opportunity to contribute to super with the following changes:
- the removal of the work test for personal (after-tax) contributions2 and salary sacrifice contributions, and
- an increase to the amount of after-tax contributions that may be made within a single financial year.
Opportunity #2: Removal of Work Test
Currently, the work test requires you to undertake work for at least 40 hours in a consecutive 30 day period in the financial year a super contribution is made. Alternatively, you may be eligible to apply the work test exemption.
This requirement is removed from 1 July 2022 for individuals aged 67-741 if making personal after tax2 contributions and salary sacrifice contributions. The removal of the work test may make it easier for you to make contributions.
It is important to note that the work test (or work test exemption) still applies if you make a personal contribution and wish to claim a tax deduction.
Other eligibility requirements to make contributions continue to apply, such as total super balance limits and contribution caps.
Opportunity #3: Extended Eligibility to make After Tax Contributions
Caps apply to limit the total contributions that you can make to super. The current annual non concessional contributions (NCC) cap is $110,0003. NCCs include:
- personal contributions for which you don’t claim a tax deduction
- spouse contributions, and
- certain amounts you may transfer from an overseas super fund.
If you meet certain requirements, you may be eligible to ‘bring-forward’ NCCs from future financial years, to make even larger contributions. This is known as the ‘bring-forward rule’. If you’re eligible, you may be able to contribute up to $330,000 either in a single financial year, or over a three-year period.
1 Contributions must be received no later than 28 days after the month in which the person turns age 75.
2 Personal contributions include those for which you do not claim a tax deduction, spouse contributions and small business CGT amounts.
3 Current for 2021/22 and 2022/23 financial years. May be indexed in future years.
Currently, you need to be less than 67 on 1 July of a financial year to be eligible to use the bring-forward rule. From 1 July 2022, you may be able to access the bring-forward rule if you’re aged less than 75 on the prior 1 July. Other eligibility rules will continue to apply, such as the total super balance limits.
The following table summarises the maximum NCCs that can be contributed in 2022/23 based on your total super balance as at 30 June 2022:
| TSB thresholds and bring forward caps from 2022/23 | |
| TSB at 30 June 2022 | NCC Cap |
| $1.7m + | $0 |
| $1.59m to < $1.7m | $110,000 |
| $1.48m to < $1.59m | $220,000 |
| < $1.48m | $330,000 |
| NOTE: Contribution caps apply to both concessional and non-concessional contributions. Care should be taken to avoid breaching your cap as additional tax and penalties may apply. |
Opportunity #4: Downsizer Contributions Eligibility Reducing to Age 60
Downsizer contributions allow eligible individuals to contribute some or all of the proceeds of the sale of their home, without impacting other contribution caps. Unlike NCCs, downsizer contributions do not have a total super balance limit, or an upper age limit. This means it could be a great, final way to boost super for those who don’t meet other eligibility rules to contribute, or where the NCC cap has been earmarked for other purposes.
What’s changing?
From 1 July 2022, the eligibility age is reducing from 65 to 60. The age reduction increases the number of individuals who may be eligible to make a downsizer contribution and boost their retirement savings.
What’s the limit?
Provided certain other conditions are met, it may be possible to contribute up to $300,000 per person (or $600,000 per couple) from the proceeds of selling your home.
Downsizer contributions won’t count towards your concessional or non-concessional contribution caps.
You’ll need to make the contribution within 90 days of settlement of your sale, and you need to complete the required forms to notify your fund that you’re making a downsizer contribution, no later than the time your contribution is made. You must have reached the eligibility age at the time of contributing.
What’s the benefit?
Aside from super being a concessionally taxed investment, there are a number of other ways a downsizer contribution could benefit you.
Funds in super accumulation phase are an exempt asset for social security purposes while you are under your Age Pension age. This could help increase or maintain your or your spouse’s entitlement to a pension or other benefit. Also, making a downsizer contribution together with an NCC could help you contribute even more of your home sale proceeds into the concessionally taxed super environment.
Other eligibility rules and requirements apply. Please contact Calibre if you would like to understand whether a downsizer contribution strategy is right for you.
Conclusion
Now is a great time to revisit your existing savings and retirement strategies. With a number of super changes coming into effect from 1 July 2022, understanding the changes and how these could benefit you is a great way to get prepared.
Whether you’re thinking about financial independence or have already ceased working, there is likely to be value in reviewing your circumstances and having a discussion with Calibre about how these super changes could benefit you.
Next steps
If you have any questions/thoughts in relation to this article or would like more information, please contact Gordon Thoms or David Conte at Calibre Private Wealth Advisers on ph. (03) 9824 2777 or email us here.
The information contained in this article is of a general nature only and may not take into account your particular objectives, financial situation or needs. Accordingly, the information should not be used, relied upon or treated as a substitute for personal financial advice. While all care has been taken in the preparation of this article, no warranty is given in respect of the information provided and accordingly, neither Calibre Private Wealth Advisers, its employees or agents shall be liable for any loss (howsoever arising) with respect to decisions or actions taken as a result of you acting upon such information.
This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial and tax/or legal advice prior to acting on this information. Before acquiring a financial product a person should obtain a Product Disclosure Statement (PDS) relating to that product and consider the contents of the PDS before making a decision about whether to acquire the product. The material contained in this document is based on information received in good faith from sources within the market, and on our understanding of legislation and Government press releases at the date of publication, which are believed to be reliable and accurate. Opinions constitute our judgment at the time of issue and are subject to change. Neither, the Licensee or any of the Oreana Group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document. Gordon Thoms and David Conte of Calibre Private Wealth Advisers are Authorised Representatives of Oreana Financial Services Limited ABN 91 607 515 122, an Australian Financial Services Licensee, Registered office at Level 7, 484 St Kilda Road, Melbourne, VIC 3004. This site is designed for Australian residents only. Nothing on this website is an offer or a solicitation of an offer to acquire any products or services, by any person or entity outside of Australia.