The ability to grow your super for longer
Older Australians will receive a welcome ability to boost their retirement savings as the Government proposes greater opportunity for those over 65 to add to their super. The changes include removing the Work Test if aged 65 or 66, broader access to bring forward contribution rules, and extending the eligibility for spouse contributions up to 74 years of age.
1. No requirement for the Work Test up to age 66
It’s proposed that from 1 July 2020, Australians aged 65 and 66 will no longer need to meet the Work Test before making both concessional and non-concessional voluntary superannuation contributions.
This will benefit people who work limited hours or undertake voluntary work, and will align the Work Test with the Age Pension eligibility age, which is scheduled to reach 67 from 1 July 2023.
2. Greater access to bring-forward arrangements
From 1 July 2020, the ability to access the bring-forward arrangements for non-concessional contributions will also be increased by two years, if the recommended changes become law. Those aged 65 and 66 will be able to contribute a total of $300,000 in a single year (based on the annual $100,000 cap), effectively ‘bringing forward’ three years of future super contributions.
When combined with changes to the Work Test, this will provide retirees with more options to grow their retirement savings.
3. Extended eligibility for spouse contributions
Currently, anyone aged over 70 cannot receive contributions made by another person on their behalf. However, the intent is to raise the age limit for spouse contributions from 69 to 74 years, which may help a couple even out their superannuation assets and may provide a tax offset to the contributing spouse.
There is no age restriction on the person making the spouse contribution.
In December 2020, John and Jane will both be aged 66 and fully retired for two years. They have owned an investment property for many years and decide to sell it for $700,000. By waiting until they are retired, John and Jane have minimised their significant capital gain, leaving them more money to invest for their future.
Under the current pre 1 July 2020 work test rules, neither would be eligible to contribute to super. However, the proposed new rules don’t require a work test until age 67, so both John and Jane could use some of the proceeds to make contributions to their super.
The most tax-effective contribution type would depend on their overall circumstances, but could include the following.
- Concessional contributions up to $25,000 each, to offset high taxable capital gains on the sale of the investment property.
- Non-concessional contributions up to $300,000 each (depending on their current super balances).
- A spouse contribution of $3,000 to each other (as part of the non-concessional contribution), providing both with a potential tax offset of up to $540.
4. Recent changes to superannuation that have become law
Previous Federal Budgets have also included changes to superannuation designed to help improve the system’s sustainability, flexibility and integrity.
We’ve summarised those changes that have now been passed as law, so you can explore how they might help you save more for your retirement.