Key changes to superannuation brings some good news for retirees

Changes to superannuation rules open the door to some worthwhile strategies. Picture: Shutterstock.
Changes to superannuation rules open the door to some worthwhile strategies. Picture: Shutterstock.

Legislation has finally been passed to give effect to several of the key superannuation changes proposed in the 2021 federal budget.

This is great news for retirees, and people approaching retirement, as they open the door to some worthwhile strategies.

The changes include the removal of the work test requirement for non-concessional contributions for people aged between 67 and 75, and the extension of eligibility for individuals under 75 at the beginning of the financial year to make non-concessional contributions using the bring forward rules.

Furthermore, eligibility to make downsizer contributions has been extended to those aged 60 and over.

The work test will no longer need to be met by individuals aged between 67 and 75 when making salary sacrificed contributions and personal non-concessional contributions. However, the work test will still need to be met to claim a tax deduction for personal concessional contributions.

Apart from the downsizing contribution, no non-concessional contributions may be made once total superannuation balance reaches $1.7 million.

Concessional contributions can be made irrespective of the total superannuation balance, and there is a contribution cap of $27,500 a year - this includes superannuation from all sources including the employer contribution.

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There will be no tapering of the bring-forward rule for those approaching 75. This means that if a person's age is less than 75 on July 1 and they meet the ordinary eligibility criteria including that which relates to the total superannuation balance, the bring forward rule may be triggered.

This could enable a person to put up to an additional $330,000 into their superannuation provided the bring forward rule has not been used in the previous three years. Contributions will need to be received no later than 28 days after the month the person turns 75.

However, if a person turns 75 in June, they will not be permitted to trigger the bring forward rule in July the following financial year. In short, the individual must be 74 or under at some time during the financial year to be able to use the bring forward rule.

The ability to withdraw money from superannuation and then re-contribute it as a non-concessional contribution can be a useful tool in reducing the death tax (ie tax paid on death benefit lump sums received by non-dependent adult children), as it could convert a substantial portion of the taxable component to the tax-free component.

Furthermore, if there was a substantial imbalance in the superannuation balances of a couple, one partner could withdraw say $330,000 and contribute it to their partner's superannuation as long as the partner's super is not in excess of $1.7 million.

The ability to make downsizer contribution at age 60 has significant benefits in certain cases. For starters, it would enable people with high superannuation balances to put another $300,000 each of the super because the $1.7 million limit on non-concessional contributions does not apply to the downsizer contribution.

Keep in mind that tax-deductible concessional contributions can be used to reduce capital gains tax in some cases.

This would be particularly relevant if the person had less than $500,000 in super at the end of the previous financial year, and had not been making concessional contributions because they had been out of the workforce for several years. Possibly as much as $100,000 could be contributed to superannuation using the catch up concessional contribution strategy. This could eliminate CGT on sale of an asset.

Given that money in superannuation is not assessed by Centrelink until the holder reaches pensionable age, or starts an income from their superannuation, the ability to contribute large chunks of money to superannuation may be highly effective if there was an age difference between the members of a couple. By holding the superannuation in the younger person's name the older person may qualify for a part pension.

This is just overview of the opportunities available - expert advice should always be taken.

Noel answers your money questions

Question

I am a contract teacher with the NSW Department of Education. I am 65.

I have super worth $95,000 and also have $100,000 in a term deposit, which has been languishing for some years. I'm thinking, a better move would be to close the term deposit and put the money in my super, as a non-concessional contribution. Do you think this would be a good move?

Answer

You are 65 which means you have no risk of loss of access, and little to fear from any potential changes in the rules. The returns from good superannuation funds have been way ahead of what you can achieve in a term deposit so it makes sense to move the money to superannuation.

Keep in mind that you can make tax-deductible contributions of up to $27,500 a year which includes the employer contribution. You may be better off to make part of the contribution from after-tax dollars, and the balance by pre-tax the deductible contributions. Just to do the sums.

Question

I have a two year old and have set up a children's bank account with bonus interest. I have close to $10,000. Is this the best option? What tax effective investment options are available for children - or should I invest under my name until she is 18?

Answer

I have long suggested that insurance bonds are the perfect investment to build up funds for children and grandchildren because is nothing to declare on anybody's tax return each year as the earnings accrue as bonuses.

Furthermore, at any stage the bond can be transferred to the child free of capital gains tax. An insurance bond is a tax paid investment with the fund paying tax at 30% on your behalf. This is why the asset mix is important and why you should take advice about which bond best suit your goals and your risk profile.

Question

I just got my prescriptions filled and the cost as a pensioner has increased from $5.60 last year to $6.80, - an increase of over 21 per cent. The government claims the increase is based on the CPI. The latest CPI figure is 3 per cent for the year to September. I believe this deserves further investigation.

Answer

A Health Department spokesperson tells me that patients eligible for Pharmaceutical Benefit Scheme (PBS) subsidised medicines are usually required to pay a co-payment towards their cost.

From 1 January 2022, patients who have a concession card (such as a Pensioner Concession Card) are charged a maximum co-payment amount of $6.80. In 2021, this maximum concessional co-payment amount was $6.60.

The amount of co-payment is adjusted on 1 January each year in line with the Consumer Price Index (CPI) - therefore the maximum concessional co-payment is now $6.80.

Since 1 January 2016, pharmacists have the option to discount the PBS patient co-payment by up to $1.00 (unless the prescription is an early supply of a specified medicine, in which case, the full co-payment applies). It is therefore open to pharmacists to pass on a discretionary $1.00 discount to patients, which would reduce the 2022 co-payment to $5.80.

In 2021, it was also open to pharmacists to pass on a discretionary $1.00 discount to patients, which would reduce the co-payment to $5.60. It is therefore likely that the co-pay amount being referred to in the enquiry for the 2021 year, was being discounted by the relevant pharmacy.

The option to discount the PBS patient co-payment by up to $1.00 is discretionary and is a matter for the relevant pharmacy. Readers are encouraged to shop around, and enquire at their local community pharmacy in order to find the best price for their medicines.

  • Noel Whittaker is the author of Retirement Made Simple and numerous other books on personal finance. noel@noelwhittaker.com.au

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This story Key changes to superannuation brings some good news for retirees first appeared on The Canberra Times.