How the federal budget impacts super

As we prepare to vote in the federal election, it is important to consider superannuation and the policies, both historical and current, espoused by the major parties.

Fortunately, this year’s budget contained minimal changes to super, unlike the previous Coalition budgets. Significantly, however, there were no direct measures in the budget that addressed the gender gap to improve women’s financial position at retirement.

The primary lens through which super policies should be viewed is this: the sole purpose of super is the provision of retirement income for fund members and their dependants. The original vision, as legislated by the Keating government, was that super should not be used as a tool for governments to dip into – as happened with the massive drawdowns during COVID lockdowns, or for any other economic crisis governments face.

So, what were the major elements in the budget in relation to super?

First, both major parties agreed to increase the Super Guarantee (SG) rate to 10.5% as at 1 July 2022, progressively moving up to 12%.

This is welcome news after the long delay to the increase by the Abbott government and successive Coalition governments that resulted in lost earnings and employer contributions for members. This freeze was based on the argument that employers could not afford the increase.

Previously, no super was paid to low-income earners who earned less than $450 a month. This threshold for eligible SG contributions will be abolished and all workers who receive employer payments will be paid super. This measure has been supported by industry funds for years and has finally come about to ensure greater equity in SG payments.

The work test for those aged 67 to 74 will be removed for voluntary employer, salary sacrifice and non-concessional super contributions. This is a positive measure that will allow older Australians to top up their super prior to retirement.

Previously those aged between 67 and 74 had to be gainfully employed for at least 40 hours over 30 consecutive days during a financial year before concessional or non-concessional contributions could be made into super.

Members who are receiving an income stream were required to draw down a certain prescribed amount from their pension annually with the required amount increasing with age.

The reasoning behind this measure was that super was meant to be used for retirement income, not estate building or for passing money onto family members. For example, a 72-year-old receiving income stream payments was required to draw down at least 5% of their total balance.

With the advent of COVID and investment markets losing value in 2020, the government decided to halve the required drawdown to avoid depleting balances when the markets were declining. So the same 72-year-old was now required to draw down at least 2.5% of the overall balance only.

Critics of maintaining the measure in this budget have argued that markets have recovered and there is no longer a need to reduce the required drawdown. They have further argued that this measure allows those with significant wealth to keep more money in a tax-free super environment rather than drawing it down as retirement income.

The expansion of the First Home Super Saver Scheme has increased from $30,000 to $50,000 for eligible participants.

The Downsizer Scheme has been expanded to allow those aged 60 (previously 65) who sell their home after 1 July 2022 to make a one-off $300,000 contribution to their super outside the concessional contribution rule. Eligible couples will be able to contribute $300,000 each.

The APRA Performance test has been extended to Trustee Directed Products from 1 July 2022 and APRA is to complete performance tests based on fund returns to 30 June 2022.

Other measures previously legislated under Your Future, Your Super reforms included changes to the default system to allow ‘stapling’ to the first fund a member signs up to, a YourSuper comparison tool and a performance test for MySuper products.

Let’s hope any future reforms to super are well-considered and based on clear benefits to members, not on narrow political ideologies or agendas.