MONEY TALK: New year, new super changes
Changes to pensions rules taking effect from July 1 will give those approaching retirement more flexibility in managing their super account. (Getty)
The new financial year is just around the corner, which means fresh rules affecting superannuation are fast approaching.
Many may have seen their super balance weaken in recent weeks due to the market turbulence, but the new financial year will at least bring some changes that will offer investors more flexibility in managing their retirement income.
For the next 12 months, there is a 50 per cent reduction on the standard minimum amount that must be paid out from a superannuation income stream. So if you don’t need as much, there is the opportunity to leave more invested for the market recovery.
And for most workers, there’s even more good news to look forward to.
From July 1, the superannuation guarantee increases from 10 per cent to 10.5 per cent, part of a legislated plan to raise the rate by 0.5 per cent each year until it reaches 12 per cent by 2025.
That means more money will be paid into workers’ retirement savings.
In fact, increasing the super guarantee to 12 per cent from 10 per cent will boost the average 30-year-old worker’s final nest egg at retirement by $66,000 to $534,000, according to the Association of Superannuation Funds of Australia.
Even better, the existing threshold that requires a worker to earn at least $450 per month before an employer pays the superannuation guarantee will disappear. From 1 July, super is payable from the first dollar of your salary.
This change is a major boost to those who only work part time or across multiple jobs and may have missed out on receiving superannuation in the past.
More money into your super is a great thing.
However, if you have also been making additional contributions via salary sacrifice arrangements, it’s worth checking the level of contributions to ensure you don’t accidentally breach the annual allowable limits.
An increase in the superannuation guarantee from July 1 will help to boost retirement savings. (Getty)
For those heading closer to retirement, things are about to get easier for you to contribute more to your super.
From July 1, there will no longer be any requirement to meet a work test for personal after-tax contributions – often referred to as non-concessional contributions. Prior to this change, you had to be employed for at least 40 hours in a consecutive 30-day-period.
That means you might be able to contribute up to $110,000 a year until you turn 75. If you have more available, you might even be able to put in up to three times that amount in one year, depending on your circumstances.
Rules on using the proceeds from a property sale to bump up your super will also be tweaked and could provide an opportunity for those nearing retirement and looking to downsize.
For a number of years, those aged 65 and over have had the option place up to $300,000 of the proceeds from the sale of their principal residence into super, without it counting towards any contribution limits. Known as a “downsizer contribution”, many Australians have taken advantage of this to get more money into the tax effective environment that super offers.
From 1 July, the eligibility age will be lowered to 60. There was even talk during this year’s federal election campaign that it could be lowered further to 55, although that extra reduction has not yet been legislated.
So, I hear you ask, how much should you contribute this financial year?
The answer is, perhaps unsurprisingly, it depends. Your position and options will guide your contributions, and timing will also be important.
As always, it’s important to stay on top of the latest alterations to our world-class super system and their implications on you, particularly at a time of rising rates and heightened market uncertainty. A good first step is to seek financial advice to check your options.
The information in this article is general information only, it does not constitute any recommendation or advice; it has been prepared without taking into account your personal objectives, financial situation or needs and you should consider its appropriateness with regard to these factors before acting on it. Any taxation position described is a general statement and should only be used as a guide. It does not constitute tax advice and is based on current tax laws and our interpretation. Your individual situation may differ and you should seek independent professional tax advice. You should also consider obtaining personalised advice from a professional financial adviser before making any financial decisions in relation to the matters discussed.