Both older and younger Australians, as well as low-income earners, are set to benefit from some upcoming super opportunities.
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.1
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.2
||Super Guarantee rate (p.a.)|
|1 July 2021 to 30 June 2022||10.00%|
|1 July 2022 to 30 June 2023||10.50%|
|1 July 2023 to 30 June 2024||11.00%|
|1 July 2024 to 30 June 2025||11.50%|
|1 July 2025 to 30 June 2026 and onwards||12.00%|
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.
To track contributions made to your super account and view your balance, download the CFS app.
3. People aged 65-74 will no longer have to meet the work test to make voluntary contributions to super
People aged 65-743 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.
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 75.3
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 - 743 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. You can find out more on the ATO website.
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’ important to submit a downsizer contribution form to your fund at the time you make this type of contribution. You can find out more on the ATO website.
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 – albeit over a longer time period.
Find out more
Would you like to know more about what these changes might mean for you and your super? If you have a financial adviser, have a chat to them about the best way to take advantage of these changes.
If you don’t have one, we’ve included a link to find an adviser below, along with a few other resources you may find helpful.
1Source: MoneySmart superannuation calculator. Calculations are for a person aged 27 who wants to retire at 67 and earns $14,400 p.a. before tax. Investment returns are estimated at 7.5% p.a., tax on earnings at 7% p.a., $74 p.a. administration fees and investment fees at 0.85% p.a. Please check the calculator for further assumptions and disclaimers. This projection takes into consideration the rise in SG contributions of 0.5% p.a. until SG contributions reach 12.0% in 2025-26 and future financial years. 2Australian Taxation Office
Taxation considerations are general and based on present taxation laws and may be subject to change. You should seek independent, professional tax advice before making any decision based on this information. CFSIL is also not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and you should seek tax advice from a registered tax agent or a registered tax (financial) adviser if you intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.Colonial First State Investments Limited ABN 98 002 348 352, AFSL 232468 (CFSIL) is the issuer of super, pension and investment products. This document may include general advice but does not take into account your individual objectives, financial situation or needs. The Target Market Determinations (TMD) for our financial products can be found at www.cfs.com.au/tmd and include a description of who a financial product is appropriate for. You should read the relevant Product Disclosure Statement (PDS) and Financial Services Guide (FSG) carefully, assess whether the information is appropriate for you, and consider talking to a financial adviser before making an investment decision. The PDS and FSG can be obtained from cfs.com.au or by calling us on 13 13 36.