By Peter Kelly on 9 June 2021
The last significant changes to super were made back in July 2017. Since then, things have motored along quite nicely with just some minor tweaking by Government along the way.
However, on 1 July 2021, several aspects of super will be changing – for the better, for most.
Let us spend few moments looking at just how our super might be changing from 1 July 2021.
1. Superannuation Guarantee
Superannuation Guarantee, or SG as it is often known, is the basis of the compulsory superannuation system. Employers are required to contribute a set percentage of their employees’ salary to superannuation, for most employees.
The current rate is 9.5% per annum.
The rate is set to increase to 10% from 1 July 2021.
While many employers pay their employees’ SG on top of their wage or salary, some employees may notice a small reduction in their take-home pay.
Where an employee is paid a salary package that includes super, the increase in the SG rate may be absorbed into the total package. That is, the package does not increase, but the amount allocated to SG increases while, at the same time, reducing take-home pay.
There can be significant penalties for employers that fail to pay the correct rate of SG to superannuation fir their employers.
2. Concessional contributions
Concessional contributions include contributions made by an employer, including SG, and personal contributions made by an individual who is planning to claim a tax deduction for those contributions.
Up until 30 June 2021, the cap, or maximum amount of concessional contributions that can be made without incurring a tax penalty is $25,0001 per person.
From 1 July 2021, the annual cap will increase to $27,500.
3. Non-concessional contributions
Non-concessional contributions are contributions a person makes on their own behalf, or contributions they make for an eligible spouse. These are generally made from after-tax income and are not tax deductible.
The annual cap, or limit that applies to non-concessional contributions is $100,000 however, from 1 July 2021, this will increase to $110,000.
Provided a person was aged under 65 at the start of the financial year in which they intend to make a non-concessional contribution, they may bring forward up to three years contributions and make non-concessional contributions of up to $300,000 ($330,000 from 1 July 2021).
However, there are some restrictions on making non-concessional contributions.
Firstly, to be eligible to make a non-concessional contribution, a person must have a total superannuation balance of less than $1.6m. The total superannuation balance is the total of all amounts that person has in superannuation at the end of the previous financial year.
From 1 July 2021, the total superannuation balance limit will increase to $1.7m.
Therefore, to make a non-concessional contribution in 2021-22, a person will need to have had a total superannuation balance on 30 June 2021 of less than $1.7m.
From 1 July 2021, a person aged under 652 on 1 July 2021 will be able to make the following maximum non-concessional contributions using the three-year bring forward arrangement:
Total superannuation balance on 30 June 2021
$1.7m or more
$1,590,000 or more, but less than $1,700,000
$1,480,000 or more, but less than $1,590,000
Less than $1,480,000
When wishing to maximise contributions using the three-year bring forward arrangement, it may not be possible to make any further non-concessional contributions during the following two financial years. If intending to make contributions using the three-year bring forward, it is important to seek appropriate financial advice before making any contributions. Exceeding the non-concessional contribution cap can have adverse tax consequences.
4. Transfer balance cap
The transfer balance cap is the maximum amount a person can use to commence a retirement pension or income stream within the superannuation environment. The current cap is $1.6m.
The transfer balance cap is to be indexed by $100,000 and will increase to $1.7m from 1 July 2021.
However, where a person has already commenced a pension and has had amounts counted against their transfer balance cap, only the unused portion of their transfer balance cap will be indexed on a proportionate basis.
By way of example, if a person has previously had $1.6m counted against their transfer balance cap, their cap will not be indexed as they have no unused cap.
Alternatively, where $800,000 has been previously counted against the transfer balance cap, the 50% of the transfer balance cap remains unused. As a result, the transfer balance cap will increase by $50,000 (i.e., 50% of $100,000), making the unused cap now $850,000.
Where to from here?
While indexation of certain caps from 1 July 2021 will improve the opportunities for many people, they come with traps for the unwary.
When looking to maximise superannuation contributions, or the amount that can be applied to the pension phase of super, seeking appropriate financial advice from a qualified financial planner is highly recommended, to avoid many of the potential pitfalls.
1. Unless a person is eligible to carry forward the unused portion of their concessional contribution cap that has accrued since 1 July 2018. The ability to carry forward the unused portion of the concessional contribution cap is subject to meeting certain conditions.
2. This age limit was due to increase from 1 July 2020 to under 67 at the start of the financial year however, the amending legislation has not been passed yet.