From 1 July 2022, there will be some changes made to super to make it easier for people to grow their retirement savings. These changes will create opportunities for both older and younger Australians, as well as low-income earners, by removing some of the barriers that currently exist in the super system.

HERE’S WHAT’S CHANGING:

• The $450 Super Guarantee (SG) threshold will be removed, meaning that employers will start paying super for low-income earners.
  
• The SG contribution rate will rise to 10.5% p.a. for all employees.
  
• People aged 65-74 will no longer have to meet the work test to make voluntary contributions to super.
  
• The ‘bring-forward’ rule age limit will increase to 75, so more people can make lump sum contributions to super.
  
• The minimum age for downsizer contributions will reduce from 65 to 60, giving more flexibility to people who are selling their home.
  
• First home buyers can now save up to $50,000, and any deemed earnings, to use as a home deposit through the First Home Buyer Saver Scheme.

Here are some more details about how each of these changes will work, and how you can take advantage of these opportunities to boost your retirement savings.

1. Employers will start paying super for low-income earners

SG contributions are the mandated contributions that your employer puts into your super on your behalf. For a lot of people, these are the only super contributions that go into their account.

Until now, employers haven’t had to make these contributions if an employee earns less than $450 in a calendar month. Because of this, if you work casually, or you work part-time across multiple jobs, you may not have received any contributions at all from your employment.

From 1 July 2022, the $450 threshold will be removed. Employers will have to make SG contributions regardless of how much the employee earns (unless they are under 18 and working less than 30 hours per week).

Of all the upcoming super changes, this one has the potential to make the most difference, because it means low-income earners will finally have super contributions going into their account without having to make voluntary contributions themselves. These regular contributions can go a long way towards building up retirement savings.

For example, someone who currently works three jobs, earning $400 per month for each job, will now have $1,512 contributed to their super in 2022-23, which will then accumulate further earnings. Over a 40-year period, this could add up to over $84,000 or even substantially more, depending on how their super is invested.
 

2. SG contribution rate will rise to 10.5% for all employees

The SG contribution rate is currently 10% p.a. of your wages or salary. This rate will increase to 10.5% from 1 July 2022, and it’s scheduled to increase progressively to 12% by July 2025, as shown in the table below.

Each of these incremental changes is great news for people who are paid SG contributions by their employers, because it means your super balance will grow faster without you having to make any extra contributions.

3. People aged 65-74 will no longer have to meet the work test to make voluntary contributions to super

People aged 65-74 currently have to satisfy the work test (or qualify for an exemption) to be able to make voluntary contributions to super. This means proving you worked for a minimum of 40 hours, during a period of 30 consecutive days, in the financial year for which you want to make a contribution.

Contribution acceptance

From 1 July 2022, you won’t have to meet the work test for the super fund to accept any type of contributions you make to your super, or any contributions your employer makes to your super, while you are under age 75.

From age 75 the only type of contribution that can be accepted into your super account are downsizer contributions or compulsory employer superannuation contributions.

Personal deductible contributions

From 1 July 2022, if you are aged 67 - 74 at the time you make a personal super contribution, you only have to meet the work test, or work test exemption, if you wish to claim a tax deduction for those contributions.

A work test is not required to claim a tax deduction for personal contributions made while you are under age 67.

This change gives older Australians more flexibility to be able to contribute to super and boost your retirement savings, regardless of your employment status, in the years leading up to your 75th birthday. 

4. ‘Bring-forward’ rule age limit will increase to 75

The ‘bring-forward’ rule allows you to use up to three years’ worth of your future non-concessional (after-tax) super contribution caps over a shorter period – either all at once or as several larger contributions – without having to pay extra tax. 

The non-concessional contributions cap is currently $110,000 per year. So, if you use the bring-forward rule, you may be able to contribute up to $330,000 in a single year as long as you don’t exceed the total cap over the three-year period. This strategy is mostly used by people nearing retirement, who want to contribute as much as possible to super before they stop working, or people who receive an inheritance or other type of windfall. 

Currently, you need to be under age 67 at any time in a financial year to use the bring-forward rule. From 1 July 2022, the age limit will increase to 75. This is great news for people who want to put as much money as possible into their super before they retire, without being penalised for it. 

Eligibility for the bring-forward rule will depend on your total super balance at the most recent 30 June, and the amount of your personal contributions over the past two financial years. 
 

5. Minimum age for downsizer contributions will reduce from 65 to 60

The downsizer contribution is a strategy aimed at helping older Australians put all or part of the proceeds of the sale of one qualifying home into super to boost your retirement savings. You can only make this type of contribution, and the maximum amount you can contribute is $300,000. However, by combining it with the bring-forward rule, you could potentially contribute $630,000 to super (or $1.26 million as a couple) in a single year.

Currently, you can only make a downsizer contribution if you’re 65 or older at the time of the contribution. From 1 July 2022, the minimum age reduces to age 60. This will provide more flexibility to people in their early sixties who are planning to sell their family home and want to move some or all of the proceeds into super. 

Although the work test has never applied to downsizer contributions, other eligibility rules apply and it’s important to submit a downsizer contribution form to your fund at the time you make this type of contribution. 
 

6. First home buyers can now save up to $50,000 using the First Home Super Saver Scheme

People saving up for their first home can use the First Home Super Scheme (FHSS) to grow their deposit amount. It takes advantage of the favourable tax treatment of super contributions and earnings to help you save a deposit faster than if you save outside of super. 

You can currently use this strategy to release up to $30,000 in eligible voluntary super contributions, along with any deemed earnings, for the purchase of your first home.

From 1 July 2022, the maximum amount of eligible contributions that may be released will increase to $50,000. However, the annual limit of voluntary contributions eligible for the scheme remains at $15,000 per financial year. This means it would take at least four years of maximum contributions to have the maximum $50,000 available for release. 

Given the substantial rise in property prices we’ve seen all around Australia over the past year, this change will help first home buyers save a larger deposit using this strategy.

To discuss your superannuation we encourage you to contact The Money Edge on (07) 4151 8898 or email us at mail@themoneyedge.com.au 

_{Disclaimer: This content provides general information only, current at the time of production. Any advice in it has been prepared without taking into account your personal circumstances. You should seek professional advice before acting on any material.}