More tinkering with super

Back in May 2019, the Federal Budget included a proposal to increase the age limit at which people could make non-concessional contributions under the three year bring-forward rule.

But, before getting ahead of ourselves, let’s review the current arrangements.

• Non-concessional contributions are personal contributions to a superannuation fund, generally made from after-tax income or from other savings.
• The maximum non-concessional contribution that can be made in a financial year $100,000 (to increase to $110,000 from 1 July 2021).
• Where a person is aged under 65 at the start of a financial year, they may bring forward up to three years of non-concessional contributions and contribute up to $300,000 in a single year ($330,000 from 1 July 2021)[1].
• When the three-year bring forward arrangement is triggered, the ability to make contributions in the following two financial years is restricted.

The 2019 Federal Budget proposal would see the age limit for accessing the three-year bring forward arrangement increased from 64 at the start of the financial year to 66. This was to take effect from 1 July 2020.

The Bill covering this change (Treasury Laws Amendment (More Flexible Superannuation) Bill 2020) was introduced into the House of Representatives on 13 May 2020, and eventually progressed to the Senate on 31 August 2020.

And that is when things came to a grinding halt.

Some further amendments were proposed, and the Bill lay dormant in the Senate until 16 June 2021. Then, amid a flurry of activity, the Bill was debated and was finally passed by both Houses of Parliament on 17 June 2021.

At the time of drafting this article[2], the Bill has not received Royal Assent however this is expected to be a formality.

So, what does this mean?

A person who was aged 66 or younger at the start of a financial year may now bring forward up to three year’s non-concessional contributions and contribute up to $300,000 in the 2020-21 financial year, or $330,000 from 1 July 2021 onwards.

Another important change that became effective from the 1 July 2020 was the increase in the age at which super contributions could be made without a person having to meet a work test.

Just to recap, a person wishing to make contributions who is aged 67 to 75 must generally meet a work test to be able to make contributions. The work test requires a person to be gainfully employed or self-employed for at least 40 hours worked within 30 consecutive days in the financial year in which they intend to make their contribution.    

Let’s tie this together:

• With effect from 1 July 2020, a person aged 66 or younger at the start of a financial year may bring forward up to three year’s non-concessional contributions.
• Triggering the three-year bring forward may restrict the amount of non-concessional contributions that can be made over the following two financial years.
• A person aged 66 on 1 July 2020 who has subsequently turned 67 will need to meet the work test if they wish to make contributions after their 67^th
• If the three-year bring forward has been triggered in the previous two financial years, it cannot be used again until the end of the original three-year period.
• People with large superannuation balances – generally more than $1.4m ($1.48m from 1 July 2021) may be restricted in the amount of non-concessional contributions they can make.

In a nutshell, the key message is that people aged 65 or 66 at the start of a financial year can now access the three-year bring forward arrangement when making non-concessional contributions.

When looking to make large contributions, it is recommended that advice is sought from a licensed financial adviser to avoid inadvertently exceeding contributions cap and other eligibility criteria.

This latest change to the law is separate from the changes announced in the 2021 Federal Budget. Those changes, which include the removal of the work test requirement for people under 75 years of age, are yet to be legislated and are not expected to come into effect until 1 July 2022 at the earliest.

[1] There are some restrictions on people making non-concessional contributions and accessing the three-year bring forward arrangement where they have a total superannuation balance of more than $1.4m ($1.48m from 1 July 2021).

[2] 21 June 2021