Super changes are good news for retirees

Legislation has finally been passed to give effect to several of the key superannuation changes proposed in the 2021 federal budget. This is great news for retirees and those approaching retirement, as it opens the door to some worthwhile strategies.

The changes include the removal of the work test requirement for nonconcessional contributions for people between 67 and 75, and the extension of eligibility for individuals under 75 at the start of the financial year to make non-concessional contributions using the bring forward rules. And eligibility to make downsizer contributions has been extended to those aged 60 and over.

The work test will no longer need to be met by individuals aged 67 to 75 when making salary sacrificed contributions and personal nonconcessional contributions.

However, the work test will still need to be met to claim a tax deduction for personal concessional contributions.

Apart from the downsizing contribution, no nonconcessional contributions may be made once total superannuation balance reaches $1.7m.

Concessional contributions can be made irrespective of the total superannuation balance, and there is a contribution cap of $27,500 a year – this includes superannuation from all sources including the employer contribution.

There will no tapering of the bring forward rule for those approaching 75. This means that if a person’s age is less than 75 on the prior 1 July and they meet the ordinary eligibility criteria, including that which relates to the total superannuation balance, the bring forward rule may be triggered. This could enable a person to put up to an extra $330,000 into superannuation provided the bring forward rule has not been used in the previous three years.

The ability to withdraw money from superannuation then re-contribute it as a nonconcessional contribution can be a useful tool in reducing tax paid on death benefit lump sums received by nondependent adult children, as it could convert some of the taxable component to the taxfree component. And if there was an imbalance in the superannuation balances of a couple, one partner could withdraw money to contribute it to their partner’s super, as long as the partner’s super is not in excess of $1.7m.

The ability to make downsizer contribution at age 60 would enable people with high super balances to put another $300,000 into super because the $1.7m limit on non-concessional contributions does not apply to the downsizer contribution.

In some cases tax-deductible concessional contributions can be used to reduce capital gains tax. This would be relevant if the person had less than $500,000 in super at the end of the previous financial year, and had not been making concessional contributions because they had been out of the workforce for several years. As much as $100,000 could be contributed using the catch up concessional contribution strategy. This could eliminate CGT on sale of an asset.

As money in super is not assessed by Centrelink until the holder reaches pension age, or starts an income from their super, the ability to contribute large chunks of money to super may be highly effective if there was an age difference between a couple.

By holding super in the younger person’s name, the older person may qualify for a part pension. Expert advice should always be taken.