Federal Budget 2021/22: What it means for your super and retirement

While a number of superannuation and retirement measures were announced, most of these are either changes or adjustments to existing measures.

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

See also the Treasury budget fact sheets.

Removal of $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 total super balance and transfer balance caps will continue to apply (both 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 super 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 ATO to administer the transfer of unclaimed superannuation money directly to KiwiSaver accounts (the New Zealand equivalent of Australian super funds).

Proposed start date: 1 July 2021

New age threshold for downsizers

In another change to an existing measure, homeowners 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 allowed in addition to existing super rules and various caps including the total super balance cap of $1.6 million (to rise to $1.7 million on 1 July). Note, however, that the $1.6 million (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) will continue to apply.

Downsizer contributions are exempt from the work test.

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 super 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.

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. This 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

Superannuation Guarantee

The Budget is silent on the legislated superannuation guarantee schedule, ensuring the 0.5% increase to 10% will go ahead on 1 July 2021.

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:

• the concessional contributions cap is $27,500, up from $25,000
• the non-concessional contributions cap is $110,000, up from $100,000
• the general transfer balance cap is $1.7 million, up from $1.6 million.