It is generally accepted that, for most people, superannuation is the “go-to” preferred structure for retirement savings. It is convenient, tax-advantaged and most superannuation funds offer a wide range of investment options enabling their members to structure their savings in a manner they find most comfortable, considering their appetite for risk.

However, superannuation has its limitations.

Today, I will deal with one.

Before 1 July 2020, to be able to make a voluntary contribution to super beyond their 65^th birthday, a person had to have met a “work test”.

This work test is met when a person is employed or genuinely self-employed for a period of at least 40 hours, worked within a period of 30 consecutive days, in the financial year in which they intend to contribute. Once a person turns 75, even though they may continue to be gainfully employed – as an increasing number are these days – they are unable to make voluntary contributions.

From 1 July 2020, the age limit at which personal contributions can be made without meeting the work test was increased from 65 to 67. This measure was designed, at least in part, to mirror the progressively increasing qualifying age for the age pension.

The age limit for making contributions to super also affects a person’s ability to access the “three-year bring forward rule”.

The three-year bring forward rule applies to personal (non-tax deductible) contributions a person makes to super. These are referred to as non-concessional contributions.

The current annual limit or “cap” on non-concessional contributions is $100,000 per year.

However, provided a person’s total superannuation balance (the total of all money a person has in super at the end of the previous financial year) is less that $1.4m, they can bring forward their non-concessional contributions for the current and next two financial years and make non-concessional contributions of up to $300,000 in a single year[1].

When a person makes a non-concessional contribution of more than $100,000 in one financial year, they are said to have “triggered” their three-year cap. This means that the maximum they can then contribute over the course of the next two financial years is $300,000, less the amount contributed in the first year. The maximum that can be contributed over the three-year period is $300,000.

For example, if a person makes a non-concessional contribution of $170,000 in 2020-21, they have triggered their three-year bring forward cap. The maximum that can then be contributed in 2021-22 and 2022-23 is $130,000 in total.  

On the other hand, if they contributed $300,000 in 2020-21, they are unable to make any additional non-concessional contributions until 1 July 2023.

To be able to take advantage of the three-year bring forward rule, a person must be aged 64 or younger at the start of the financial year in which they intend to contribute.

The Government has tabled legislation in the parliament that would see the age limit for the three-year bring forward rule increase from 64 at the start of the financial year, to 66. This change was due to take effect from 1 July 2020 however, at the time of writing, the legislation has not been passed by the Senate.

As this stand at present, a person may make contributions to super up until they turn 67 without having too meet a work test. However, if a person wishes to maximise their non-concessional contributions by using the three-year bring forward rule, they must have been 64 or younger at the beginning of the financial year.

Hopefully, the legislation will be passed shortly ensuring some consistency in the age limits affecting the ability to make non-concessional contributions.

When seeking to maximise retirement savings through super, timing is critically important.  

[1] A person is unable to make any non-concessional contributions if their total superannuation balance exceeds $1.6m