Changes in legislation

ESSSuper - 12 Mar 2021

Just as other laws are revised, superannuation legislation changes to reflect the retirement values and needs of not only current society, but also future retirees.

Here are some recent and upcoming changes and proposals for super legislation.

Accumulation accounts: Possibly more super from your employer

The Superannuation Guarantee (SG) employer contribution rate is scheduled to increase from 9.5% to 10% on 1 July 2021, but the Federal Government is yet to officially commit to this change. It's expected a decision will be announced in the May 2021 Federal Budget.

Pension Income Stream accounts: Minimum drawdown change

The Federal Government has temporarily reduced minimum drawdown requirements for account-based pensions by 50% for the 2020-21 financial year as part of its response to the COVID-19 coronavirus. This measure may benefit members of our Income Streams by reducing the required minimum pension payment from your investment option(s) to fund income stream payments.

Working Income Streams
Until 30 June 2021, you can elect pension payments between 2% and 10% of your account balance for your Working Income Stream. The temporary minimum of 2% is expected to be revised automatically from 2% to 4% from 1 July 2021.

Retirement Income Steams
Until 30 June 2021, you can elect minimum pension payments from 2% of your account balance for your Retirement Income Stream. You must elect a pension payment which is at least the minimum percentage amount required according to your age (see table below). The temporary minimums are expected to be revised automatically from 1 July 2021.

Accumulation accounts: Changes to the work test

Depending on your age, you may need to satisfy the Australian Taxation Office's (ATO) work test to make non-concessional super contributions. To satisfy the work test, you must have been gainfully employed for at least 40 hours during a consecutive 30-day period for each financial year in which the contributions were made. Unpaid work doesn't meet the definition of 'gainfully employed'.

What's changed? Before 1 July 2020, you needed to meet the work test if you were aged between 65 and 74 (inclusive). From 1 July 2020, you're only required to meet the work test if you're aged between 67 and 74 (inclusive).

Important notes:

• This change also applies to the work test exemption.
• Bring-forward arrangements remain unchanged for now. A proposal has been put forward by Government to extend these arrangements to individuals aged 65 and 66, however this is not yet legislated.
• If you have a total superannuation balance of $1.6 million or more at 30 June of the previous financial year, your non-concessional contributions cap is zero and any non-concessional contributions you make will be subject to excess non-concessional contributions tax and taxed at the highest marginal tax rate.

For more information regarding the work test and work test exemption, please refer to our Non-concessional (after-tax) contributions (FS005) fact sheet.

Retirement Income Stream accounts: Indexation of the transfer balance cap

The transfer balance cap (TBC) is a lifetime limit on the total amount of super you can transfer into retirement phase income streams, including most pensions and annuities. Effective 1 July 2021, the TBC will be indexed from $1.6 million to $1.7 million. The ATO is responsible for calculating your TBC and how much of the cap you have used. A proportionate method will be used by the ATO to determine how much cap space an individual has available at any point in time for members that transfer their accumulation phase super into a retirement phase pension.

If you transfer your accumulation phase super to a Retirement Income Stream (RIS) account for the first time on or after 1 July 2021, you will be subject to the new TBC of $1.7 million. Members that have a current pension or income stream in the retirement phase, and have not yet reached the current cap of $1.6 million, will have their unused portion of their cap (i.e. cap space) indexed in line with the increase from $1.6 million to $1.7 million.

The indexation of the TBC is expected to also result in changes to other caps and limits (including indexation of the defined benefit income cap).

Further information about the TBC is available by searching 'transfer balance cap' on the ATO website.

Accumulation accounts: Contribution caps are increasing

From 1 July 2021, the contribution caps are going up. This means you may be able to make more contributions into your Accumulation Plan and remain under the contribution caps.

What are contribution caps? These are limits which apply to the amount of super contributions you can make or receive each financial year before there are tax implications. More details about super contribution caps and the carry-forward rule (where you may be able to access unused cap amounts from up to five previous financial years) is available by searching 'contribution caps' on the ATO website, but here's a brief summary of the 1 July 2021 changes.

Concessional (pre-tax) contributions
What is the cap? This cap is being indexed from $25,000 to $27,500 per financial year from 1 July 2021.

What are these contributions? Concessional super contributions include your employer's mandatory Superannuation Guarantee (SG), additional voluntary contributions (e.g. salary sacrifice), and personal contributions you may make for which you claim a tax deduction. If your employer pays administration fees and/or insurance premiums to ESSSuper on your behalf, these amounts also count towards your concessional contribution cap.

Non-concessional (after-tax) contributions
What is the cap? The non-concessional contributions cap is four times the concessional contribution cap. Accordingly, with the concessional cap increasing to $27,500 from 1 July 2021, the non-concessional cap will increase to $110,000.

What are these contributions? These are extra contributions you make from your after-tax income. These payments are called non-concessional contributions because you've already paid income tax on the money you contribute to super, so you don't pay the super contributions tax. Repayments of family law debts, surcharge debts, and early release debts also count towards your concessional contribution cap.

Accumulation accounts: Spouse contributions

If your spouse is earning a low income, or earns no income (e.g. they may be a carer for family member(s) or in unpaid voluntary work), you can contribute money to their super account. Making a contribution to their super can be an effective way to grow their retirement savings, while reducing your tax.

What's changed? Prior to 1 July 2020, the receiving spouse needed to be under the age of 70, and if they were aged between 65 and 69 they were required to meet the work test. Effective from 1 July 2020, you can make voluntary contributions on behalf of an eligible spouse if:

• They were under the age of 75 at the time the contribution was made
• They meet the work test or work test exemption if they are 67 or older, and
• Their total superannuation balance is less than $1.6 million at 30 June of the previous financial year.

Accumulation and Defined Benefit Accounts: Applying for early release of super due to COVID-19

As part of the Australian Government's economic response to the COVID-19 pandemic, temporary legislation was introduced, allowing individuals impacted by the coronavirus to access up to $10,000 of their super in 2019-20 financial year, and a further $10,000 by applying before 31 December 2020.

As this application period has passed, the early release of super for this reason is no longer available.

If you need to access the money in your super account, superannuation legislation restricts withdrawals from your account unless you satisfy specific criteria - refer to our Accessing super page for more information. We encourage you to speak to our experienced consultants before making decisions about your super. To learn more or book a virtual appointment, please contact us.

There are maximum limits on before and after tax contributions which are set by the Government, and if these limits are exceeded you may be liable for additional tax. It is important that you monitor your contribution levels as they may change from year to year. Please read the Product Disclosure Statement relevant to your particular fund, available from ESSSuper, for more information.

Benefits in ESSSuper's Accumulation Plan, Income Streams and Beneficiary Account products are not guaranteed or underwritten by the Victorian Government or ESSSuper, and ESSSuper does not come under the jurisdiction of the Australian Financial Complaints Authority. ESSSuper comes under the jurisdiction of the Victorian Civil and Administrative Tribunal.

Emergency Services Superannuation Board (ABN 28 161 296 741), the Trustee of the Emergency Services Superannuation Scheme (ABN 85 894 637 037) (ESSSuper).

The information contained in this article is of a general nature only. It should not be considered as a substitute for reading ESSSuper's Product Disclosure Statement (PDS) that contains detailed information about ESSSuper products, services and features. Before making a decision about an ESSSuper product, you should consider the appropriateness of the product to your personal objectives, financial situation and needs. It may also be beneficial to seek professional advice from a licensed financial planner or adviser. An ESSSuper PDS is available at esssuper.com.au/pds or by calling 1300 650 161.