Superannuation has been given a major shakeup once again in this year's Federal Budget, and here's how the key changes could affect you.
During his budget speech in Parliament last night, Treasurer Josh Frydenberg announced the following super changes would take place, with the intention of allowing "all Australians to get the most out of the superannuation system":
- The Government will remove the current $450 per month minimum income threshold for the superannuation guarantee
- Those over 60 can contribute up to $300,000 into their super if they downsize their home
- Older Australians (67 to 74) will no longer need to meet a work test before they can make voluntary contributions to their super
Related to home buying, the government has expanded the contribution limit of the First Home Super Saver Scheme (FHSSS) to $50,000 from $30,000.
The government has also not delayed the planned increase to the superannuation guarantee (SG), which will rise to 12% by 2025 as legislated.
It will also not proceed with the proposal to extend early release of superannuation to victims of family and domestic violence,which attracted heavy criticism earlier this year.
The changes were met with mostly positive reception, although some criticisms over what wasn't changed remain.
Super Consumers Australia for example said these changes were "a step towards fairer super".
"We welcome the progress made. Financial comfort in retirement is key to people’s wellbeing," Director Xavier O'Halloran said.
"Nobody should be left behind and consumers need a seat at the table for policy discussions.”
The Actuaries Institute commended the Government on the measures to "improve flexibility and equity within the superannuation system", while Industry Super Australia Chief Executive Bernie Dean said more still needs to be done to close the super gender gap.
Removal of the $450 minimum income threshold
The minimum income threshold of $450 per month meant that anyone earning less than that was not entitled to automatic super contributions from their employer.
This meant that low-income people, or those in-between jobs, were not able to receive contributions for their work outside of contributions made themselves.
Now, employees at all income levels will receive SG contributions, something that will benefit low-income workers but primarily women.
According to the Treasurer, it will improve economic security in retirement for around 200,000 women.
“The $450-a-month threshold was an archaic rule from a paper based era that left some people receiving any super for the hours they worked every week," Mr O'Halloran said of the decision to scrap this threshold.
“Tonight’s Federal Budget delivers more super for women, people working in the gig economy, and low-income workers. It’s a positive step towards ensuring people get super for every dollar they earn.
“Scrapping this rule will see about 200,000 women and 100,000 men on low incomes earn a combined $90 million in extra super a year."
86 400 CFO Belinda Hogan also said the removal of the minimum income threshold for super guarantee is a great first step towards reaching gender equality in super payments.
"Beyond the changes for women, young people in general will have more time to benefit from the changes before retirement," Ms Hogan said.
"Furthermore, this policy does little to address the gender pay gap that already exists, which despite the changes to superannuation, will continue to derail any efforts at bridging the income gap between men and women.
"Moving forward, it’s important that the government look deeper into how equity can be achieved between men and women when it comes to both income and retirement savings."
One such change that could address this gap is paid super on maternity leave.
Still no super paid on parental leave
Industry Super Australia (ISA) however, while praising the threshold's removal, said women (particularly mothers) will still be left behind without guaranteed super payments on maternity leave.
"In a post Mother’s Day sting the government has refused to pay super on Commonwealth paid parental leave – more than 90% of which would be paid to women," ISA said.
"Women retire with a third less super than men, a big driver is the time women take out of the paid workforce for unpaid caring – if the government was serious about closing the gender super gap they would get super paid on every dollar earned, including parental leave."
More super contributions for downsizers
Seniors have been given another incentive to downsize to smaller houses, alongside the likes of stamp duty concessions.
Announced in the budget was the option for Australians over 60 to contribute up to $300,000 to their super from the sale of their home if they move into a smaller one, down from a minimum age of 65 previously.
Set to kick in from 2022, this tweak is intended to free up housing stock for younger families, and can be combined among couples and spouses for $600,000 maximum.
AMP Technical Strategy Manager John Perri said in some situations the contribution cap can be even higher.
"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," Mr Perri said.
"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)."
Research by QSuper estimates a 60-year-old adding $300,000 to their super balance would be able to draw an additional tax-free income of $24,527 per year until age 88.
QSuper said $97 million was added to its super accounts by members downsizing their family homes at an average contribution of about $200,000.
Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.
This scheme has been praised for helping seniors boost retirement savings and helping younger families buy homes, but it has also copped some flak for not helping address housing affordability concerns.
“While this will benefit homeowners, support for renters is again missing from this Budget at a time when the housing crisis has reached new lows," Council on the Ageing (COTA) Chief Executive Ian yates said.
Industry Super Australia says boosting housing supply, winding back property investor tax incentives and removing stamp duty taxes are better ways to tackle housing affordability.
Work test scrapped for super contributions
Another major change is that older Australians between 67 and 74 will no longer need to meet a work test before they can make voluntary contributions to their super.
From 2022, this means they can make or receive non-concessional or salary-sacrificed contributions, as long as the contributions are within the established caps.
The work test will still have to be met by individuals aged 67 to 74 years wanting to make personal deductible contributions however.
This test required 40 hours of work per week, and Mr Yates applauded its removal, saying it made topping up super savings "needlessly difficult for self-funded retirees".
“Superannuation is the foundation of our retirement income system. It’s fantastic to see the government taking action to preserve and grow Australians’ super balances so they can enjoy a dignified retirement," he said.
Pension loan scheme enhanced
Although not strictly related to super, the government has also expanded the amount pensioners can get from the Pension Loan Scheme (PLS), providing seniors with access to lump sums of around $12,000 for singles and $18,000 for couples.
Savings.com.au has broken down this change in further detail here.
Various groups like The Actuaries Institute and COTA welcomed the move.
"The (Actuaries) Institute also welcomes the increase in the Pension Loans Scheme to provide more Australians with flexibility for funding their retirement."
Mr Yates from COTA said: "We warmly welcome the extension of the Pension Loan Scheme to provide for people to access small lump sum payments...which could be of significant assistance to age pensioners facing unexpected costs."
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