Budget changes to super

Surprisingly, the budget was silent on the increase to the Super guarantee to 12 percent. This means that there will be an increase to 10 percent from the current 9.5 percent on 1 July 2021 (bar any sudden changes from the government). So that’s good news! The remaining two percent will rise by 0.5 percent per year until it reaches 12 percent by 2025. Bernie Dean, Industry Super chief executive, says that workers and employers have “pulled the economy through a really tough year” and that it’s “good that Australians can bank on super going to 12 percent”.

And there was more good news regarding super. Industry funds have been lobbying for years for the removal of the $450 compulsory super threshold because of its unfairness. Currently employers do not have to pay super to part time workers who earn less than $450 per month. This affects about 300,000 workers who are mainly young part time workers. It is estimated that about 63 percent of this contingent are women, so removing this threshold will improve the retirement outcomes for a large number of workers and get rid of this glaring inequity from 1 July 2022. Why shouldn’t a low paid, part time worker get super like everyone else?

The work test for workers aged 67 to 74 has been removed in the budget. From 1 July 2022 individuals aged 67 to 74 will no longer have to work a minimum of 40 hours during a consecutive 30-day period in the financial year to be eligible to make certain superannuation contributions in that financial year. This change recognises the fact that members of this age group have not had compulsory super for their entire working lives. The repeal of the work test applies to voluntary non-concessional (including the bring forward rule) and salary sacrificed superannuation contributions (but not to personal deductible contributions) and gives older Australians more flexibility in topping up their super accounts.

The budget also included improvements to the Pension Loans Scheme (PLS) for senior Australians. The PLS is a voluntary, reverse mortgage type loan for older Australians who wish to increase their retirement income by using the equity in their home. The budget paper states, “The increased flexibility from 1 July 2022 will allow a full-rate age pensioner to access their entire annual amount as a lump sum. This is on top of receiving a full-rate Age Pension”.

Another change relates to the lowering of the age from 65 to 60 for “downsizer contributions” to super. This measure allows Australians nearing retirement to contribute up to $300,000 (or $600,000 per couple) from the sale of the family hope. Again, this measure adds flexibility and accessibility for individuals or couples after they have sold their principal place of residence which they held for a minimum of 10 years.

A further budget change has to do with legacy product conversions. This will be useful for those individuals who are ‘locked-in’ to certain products which restrict access to their capital which they may need for health, aged-care or other large expenditures in retirement. So, retirees will be able to completely exit these products by commuting the account into a regular superannuation account in the accumulation phase.

One glaring area which would have helped address the gender gap in super is paid parental leave plus super. At present super is not attached to paid parental leave and this was a missed opportunity for the government to improve retirement outcomes for women especially.

All up, the changes improve the flexibility of super by allowing more contributions to go into the system helping more Australians to build their wealth for a dignified and comfortable retirement.

Bernard O’Connor
NGS Super
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