The Government has again announced superannuation changes in this year’s Budget, which are broadly positive in nature and aimed at increasing contribution opportunities for individuals between the ages of 65 and 74.
Work test exemption for individuals aged 65 and 66
The Government has stated that from 1 July 2020, individuals aged 65 and 66 will be permitted to make voluntary superannuation contributions without satisfying the work test requirement.
Currently, contributions by those aged 65 and over are subject to a work test that requires the person to have worked a minimum of 40 hours in a consecutive 30-day period during the financial year.
Extending voluntary contribution opportunities to individuals who may otherwise miss out because they are not participating in regular paid work is a welcome initiative. These changes have limited practical application for those with existing superannuation balances over $1.6 million.
By way of example, for an individual with a superannuation balance of $1 million, the change could enable an additional $450,000 (through a combination of concessional and non-concessional contributions over a period of two years) to be contributed that would otherwise not have been permitted under current rules. If an individual’s superannuation balance is already above $1.6 million, additional contributions will likely be limited to annual concessional contributions of only $25,000.
Extension of bring-forward contribution eligibility
In addition to the work test exemption, the Government has stated it would also permit “bring-forward” contributions for individuals aged 65 and 66. The ability to bring forward contributions is not currently available once an individual has reached age 65.
On a practical level, the measure would extend access to bring-forward contributions for an additional two years of an individual’s life. Bring-forward contributions allow individuals to use three years of non-concessional contributions in any one year – i.e. non-concessional contributions of up to $300,000 could be made in one financial year, significantly boosting superannuation fund assets available for investment.
The measure complements the work test exemption changes and is also stated to apply from 1 July 2020.
Extension of age limit for spouse contributions
Rounding out the limited extension of contribution opportunities for self-funded retirees is a proposal to extend eligibility for spouse contributions to age 74 from 1 July 2020. Currently, spouse contributions are not permitted from age 70. Given that currently a spouse can make personal contributions to the age of 74 (subject to other conditions), this measure may have limited benefits unless qualification is also satisfied for the spouse tax offset (i.e. currently where your spouse’s income is less than $40,000).
Reducing compliance costs for some pension funds
Currently, a portion of the income of a superannuation fund paying pensions may be exempt from tax (i.e. under the exemption current pension income [ECPI] rules).
The Government announced an intention to simplify the process of administering and calculating ECPI for superannuation funds paying pensions. Under the rules, a superannuation fund may be required to apply different methods within the one income year. The proposed measures would permit relevant superannuation funds to apply a single calculation method, which would simplify compliance with these provisions. The measures would also remove any need for eligible superannuation funds to obtain an actuarial certificate to support the fund’s ECPI claim where the superannuation fund only pays pensions throughout the year. The changes are stated to apply from 1 July 2020.
Other superannuation announcements
The Government also announced that it will provide permanent tax relief for large superannuation funds undertaking mergers. The current applicable exemptions that were due to expire from 1 July 2020 will now apply indefinitely.