The focus of this year’s Federal Budget is on initiatives designed to maintain and grow Australia’s post-pandemic economic recovery, which has been better than expected.
While a number of superannuation and retirement measures were announced, most of these are either changes or adjustments to existing measures.
The government will remove the $450 minimum monthly income threshold, which prevents many low paid women, in particular, from receiving compulsory super contributions.
In a change to an existing measure, the maximum withdrawal threshold for the existing First Home Super Saver Scheme will be increased to $50,000, from $30,000. This scheme does not allow first home buyers to withdraw any of their compulsory super savings, only voluntary savings qualify for release.
In another change to an existing measure, retirees who downsize their family home will be able to contribute $300,000 to superannuation ($600,000 for couples) at age 60, down from 65.
The budget will also abolish the work test, which requires those aged between 67 and 74 to be gainfully employed for at least 40 hours over 30 consecutive days during the financial year before concessional or non-concessional superannuation contributions can be made.
It’s important to remember that the budget measures outlined need to be legislated before they come into effect. The same applies to the package of super measures announced in last year’s mid-pandemic October budget which remain in Parliament and are still subject to debate.
Snapshot of changes
- Removal of $450 monthly income threshold for super contributions
- Higher withdrawal limit for First Home Super Saver Scheme
- Removal of super contribution “work test” for those aged between 67 and 74
- Transfer of unclaimed super to KiwiSaver accounts
- Lower age threshold for super downsizer scheme
- Legacy Product Conversions
- Pension Loan Scheme – No negative equity guarantee
- Budget papers reflect commitment to 12% super guarantee increase
For super members
Removal of the $450 monthly income threshold
The $450 monthly threshold prevents an estimated 300,000 low paid workers, 63% of whom are female, from receiving mandatory employer super contributions. The removal of this threshold will ensure this cohort of workers are paid super.
Proposed start date: 1 July 2022
New threshold for First Home Super Saver Scheme
The Government proposes to increase to $50,000 the maximum amount of voluntary contributions aspiring home buyers can take from the First Home Super Saver Scheme.
This scheme allows people to make voluntary contributions to superannuation to save for their first home. At present these contributions are capped at $15,000 a year and $30,000 in total.
Under the proposed changes, contributions into a super fund will be allowed by salary sacrifice up to a maximum of $50,000 in total. Where there is a couple involved, both individuals will be able to utilise their caps up to a maximum of $100,000.
This scheme relates to voluntary contributions only. First home buyers cannot withdraw any part of their compulsory super savings – that is, super contributions made on their behalf by their employer - under the scheme.
Proposed start date: 1 July 2022
Work test abolished for those aged between 67 and 74 years
The budget will also abolish the work test, which requires those aged between 67 and 74 to be gainfully employed for at least 40 hours over 30 consecutive days during the financial year before concessional or non-concessional superannuation contributions can be made.
This will allow individuals aged 67 to 74 years (inclusive) to make or receive non-concessional (including under the bring-forward rule) or salary sacrifice superannuation contributions without meeting the work test, subject to existing contribution caps. Individuals aged 67 to 74 years will still have to meet the work test to make personal deductible contributions.
The existing $1.6 million cap on lifetime superannuation contributions will continue to apply (increasing to $1.7 million from 1 July 2021). The annual concessional and non-concessional caps will also continue to apply.
Proposed start date:1 July 2022
Transfer of superannuation to the KiwiSaver Scheme
The Government will provide $11.0 million over four years from 2021-22 (and $1.0 million per year ongoing) to the Australian Taxation Office to administer the transfer of unclaimed superannuation money directly to KiwiSaver accounts (the New Zealand equivalent of Australian superannuation funds).
Proposed start date: 1 July 2021
For retirees
New age threshold for downsizers
In another change to an existing measure, retirees who downsize their family home will be able to contribute $300,000 to superannuation ($600,000 for couples) at age 60, down from 65. This contribution is classified as a non-concessional (post-tax) contribution and is allowed in addition to existing super rules and caps including the total super balance cap of $1.6 million (to rise to $1.7 million on 1 July) . The measure is exempt from the work test however, but it is not exempt from the $1.6 million (also rising to $1.7 million on 1 July) transfer balance cap (which limits the amount of money you can put into a pension phase account where the earnings are tax free).
Proposed start date: 1 July 2022
Legacy product conversions
A two-year period will be provided for conversion of market-linked, life-expectancy and lifetime pension and annuity products. Importantly, it will not be compulsory for individuals to take part.
Retirees with these products who choose to will be able completely exit these products by fully commuting the product and transferring the underlying capital, including any reserves, back into a superannuation fund account in the accumulation phase. From there they can decide to commence a new retirement product, take a lump sum benefit, or retain the funds in that account.
Any commuted reserves will not be counted towards an individual’s concessional contribution cap and will not trigger excess contributions. Instead, they will be taxed as an assessable contribution of the fund (with a 15 per cent tax rate), recognising the prior concessional tax treatment received when the reserve was accumulated and held to pay a pension.
Products covered:
- Market-linked, life-expectancy and lifetime products which were first commenced prior to 20 September 2007 from any provider, including self-managed superannuation funds (SMSFs).
Products NOT covered
- Flexi-pension products offered by any provider, and lifetime products offered by a large APRA-regulated defined benefit schemes or public sector defined benefit schemes, will not be included.
Proposed start date: 1 July 2022
Pension Loan Scheme
The flexibility of the Pension Loans Scheme is being improved by providing access to advance payments through allowing participants to access up to 26 fortnights’ worth of top-up payments as a lump sum and introducing a No Negative Equity Guarantee. The will provide immediate access to lump sums of around $12,000 for singles, and $18,000 for couples.
No Negative Equity Guarantee will mean that borrowers under the PLS, or their estate, will not owe more than the market value of their property, in the rare circumstances where their accrued PLS debt exceeds their property value. This brings the PLS in line with private sector reverse mortgages.
Proposed start date: 1 July 2022
Previous Budget measures scheduled to come into effect on 1 July, 2021
The Your Future Your Super measures proposed in last October’s budget – which include a measure that will staple everyone to their current superannuation fund and apply performance testing to many funds - are scheduled to come into effect on 1 July. However, as the legislation is still before Parliament, the final scope of the proposed reforms and their implementation date is not yet known.
New thresholds on 1 July 2021 for some existing measures
While not part of the 2021 Federal Budget announcements, it is worth noting that the thresholds for a number of existing super measures will increase from 1 July. This includes increases to the amount you can voluntarily contribute to super through either salary sacrifice or by making a non-concessional contribution.
The key super rates and thresholds provide that for 2021–22:
Increasing the Superannuation Guarantee rate
Although changes to the compulsory superannuation rate did not make the Treasurer’s speech last night, from 1 July 2021, the superannuation rate will increase from 9.5% to 10%.
Given the unforgettable events of 2020, the decision to proceed with the legislated superannuation rate increase is a vote of confidence in the economic recovery and good news for Australian’s and their super balances.
Treasurer Josh Frydenberg described the Australian economy as ‘better placed than nearly any other country to meet the economic challenges that lie ahead.’
Most Australian employees will enjoy the 0.5% increase in their super contributions and will see the extra money help build their super balances.
Increasing the superannuation rate beyond 10% has been on the agenda for a long time – legislation to increase the rate to 12% by 1 July 2019 was passed in 2012/13, however this was subsequently amended to 1 July 2025.
The economic downturn caused by COVID-19 fueled speculation the changes may be delayed, however there doesn’t appear to be any plans to amend the current schedule for increasing the compulsory Superannuation Guarantee rate, as shown below:
| Financial year | Super Guarantee rate |
| 1 July 2002 – 30 June 2013 | 9% |
| 1 July 2013 – 30 June 2014 | 9.25% |
| 1 July 2014 – 30 June 2021 | 9.5% |
| 1 July 2021 – 30 June 2022 | 10% |
| 1 July 2022 – 30 June 2023 | 10.5% |
| 1 July 2023 – 30 June 2024 | 11% |
| 1 July 2024 – 30 June 2025 | 11.5% |
| 1 July 2025 – 30 June 2026 and onwards | 12% |
Source: Australian Taxation Office, 2021
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This document was prepared in May 2021 by the Australian Institute of Superannuation
Trustees (AIST) ABN 19 123 284 275.
This document is of a general nature and does not take into account your personal objectives, situation or needs.
The information contained in this article does not constitute financial product advice. REI Super does not give any warranty to the accuracy, completeness or currency of the information provided. Although REI Super makes every reasonable effort to maintain current and accurate information, you should be aware that there is still the possibility of inadvertent errors and technical inaccuracies. REI Superannuation Fund Pty Ltd ABN 68 056 044 770, AFSL 240569, RSE L0000314 Trustee of REI Super (ABN 76 641 658 449), SPIN REI0001AU, RSE R1000412. MySuper unique identifier 76641658449129 May 2021.