New superannuation rules from 1 July 2019
Superannuation rules change constantly and a number of new rules came into effect on 1 July 2019. We’ve summarised some of the key changes that may affect you.
Carry-forward concessional contributions
You can now carry forward up to five years of unused amounts of concessional (before-tax) contributions caps. This means you can make contributions into your super account using your unused concessional contributions from the previous five years, provided you meet certain conditions. Any unused amounts will expire after five years.
- your total super balance1 must be less than $500,000 on 30 June of the previous financial year
- you must not have used all your $25,000 concessional contributions cap in the previous financial year.
Remember that if you’re 65 or over, the normal work test rules also apply.
The five-year carry-forward period came into effect on 1 July 2018, but the 2019-20 financial year is the first year that you can make the catch-up contributions.
No work test for first year of retirement
Good news for new retirees. From 1 July 2019, you don’t have to meet the work test to make voluntary super contributions in your first year of retirement.
To qualify for the exemption, you must meet the following conditions.
- You’ve met the work test in the previous financial year.
- You have a total super balance1 of less than $300,000 as at 30 June of the previous financial year.
- You haven’t used this exemption in a previous year.
Changes to deeming rates
On 14 July 2019, the government announced changes to the deeming rates used by Centrelink when assessing age pension eligibility under the income test.
Under the test, you’re ‘deemed’ to have earned income from your financial assets based on pre-set rates. It doesn’t matter how much you actually earn on those assets.
For most of the last 20 years, this has benefited those retirees earning a good rate of return on their money because the deeming rates (assumed rate of return) were lower than their actual returns. But when official interest rates started to fall, so too did retirees’ actual earnings. Many retirees were disadvantaged by this because their actual earnings started to fall below what they were deemed to be earning.
The recent change on 14 July 2019 aims to realign the rates. The lower rate is now 1%, which is much closer to the current2 cash rate, and applies to the first $51,800 for singles and $86,200 for couples. The higher deeming rate of 3% applies to financial assets above these levels.
These changes have been backdated to take effect from 1 July 2019.
New deeming rates from 1 July 2019
If you’re single
1% on the first $51,800 of your investment assets, plus
3% on your investment assets over $51,800
If you’re a member of a couple and at least one of you receives a pension
1% on the first $86,200 of your combined investment assets, plus
3% on your combined investment assets over $86,200
Source: Department of Human Services
New measures to ‘Protect Your Super’
The government’s new Protect Your Super package was introduced on 1 July 2019. It’s designed to protect Australians’ super accounts from being eroded by unnecessary fees and insurance premiums. Here are some of the key features.
If you have an inactive* super account with a balance less than $6,000, we’ll have to close the account and automatically transfer the balance to the Australian Taxation Office (ATO) by 30 April or 31 October each year. If you don’t want this to happen, you need to contact us or your financial planner.
*An inactive account is one that hasn’t received a contribution or rollover, changed investments or changed a binding beneficiary nomination for more than 16 months, has a balance of $6,000 or less, and a condition of release has not been met.2. Cap on fees
If you have a small, active super account with a balance below $6,000 at the end of a financial year, the changes ensure you won’t pay more than 3% p.a. in fees.3. Opt-in insurance for inactive accounts
From 1 July 2019, if your account has been inactive for 16 months and you haven’t elected to obtain or maintain insurance in that super fund, your insurance may be cancelled.4. All exit fees removed
All super funds are no longer allowed to charge any exit fees.