Federal Budget 2021-22
ESSSuper - 12 May 2021
On 11 May 2021, the Federal Budget for the 2021-22 financial year proposed several reforms to Australia's superannuation arrangements.
These aim to help Australians make the most of their retirement years by improving structural flaws in the superannuation system and increasing flexibility. The super measures in the Budget focused on helping retirees, working mothers, and low-income earners build their super savings.
It's important to remember that these are only proposals and could change if/when legislation passes through parliament.
Change to downsizer contributions
Individuals aged 65 and over can contribute up to $300,000 from the sale of their primary residence into their super, regardless of caps and restrictions that otherwise apply. Couples who own the same home can contribute a total of up to $600,000. These are referred to as downsizer contributions.
From 1 July 2022, the Government proposes allowing eligible individuals over the age of 60 access to the Downsizer Scheme.
Removal of the work test (ages 67 to 74)
Under current rules, people aged 67 to 74 who are not eligible for a work test exemption must work at least 40 hours over a 30-day period during a financial year to make non-concessional super contributions.
To help retirees boost their super savings, the Government proposes removing the work test for individuals aged 67 to 74 effective 1 July 2022. This means they can make voluntary and salary sacrifice contributions into their super and receive contributions from their spouse.
The work test will still apply to eligible people wanting to access personal deductible concessional contributions.
For more information regarding the current work test rules, refer to Non-concessional (after-tax) contributions (FS005), available in the Fact sheets section of our Publications page.
Superannuation Guarantee contribution rate increase
Superannuation Guarantee contributions are the minimum amounts that your employer must pay into your super, based on a percentage of your salary.
Effective 1 July 2021, the Superannuation Guarantee contribution rate will increase from 9.5% to 10%.
Amendment to the First Home Super Saver Scheme (FHSSS)
First introduced on 1 July 2017, the First Home Super Saver Scheme (FHSSS) was designed to allow first home buyers to accumulate a deposit inside their super.
Under the proposed amendment, the maximum amount eligible people can release from their super will increase from $30,000 to $50,000 from 1 July 2022.
Most of the same eligibility rules (aside from some slight technical changes) remain in place. The FHSSS will continue to be administered by the Australian Taxation Office (ATO).
Removal of the $450 per month income threshold
Currently, employers are not required to pay super to staff earning less than $450 per month.
In this Federal Budget, the Government has proposed to remove this threshold (to come into effect at the start of the first financial year after it is legislated). The aim of eliminating this threshold is to allow low-income and part-time workers to receive super to improve their financial future in retirement.
The Federal Budget 2021-22 includes a range of additional measures that may affect people's income and/or financial position in retirement while they may not directly impact your superannuation.
Pension Loans Scheme amendment
To supplement your retirement income, the Pension Loan Scheme lets older Australians get a voluntary non-taxable fortnightly loan from the Government. Currently, these loans can only be received as a regular income stream.
The Government has proposed to enhance the Pensions Loans Scheme from 1 July 2022 by providing immediate access to lump sums of around $12,000 for individuals and $18,000 for couples.
For more information, search 'Pension Loans Scheme' on the Services Australia website at servicesaustralia.gov.au
Extension of the low and middle income tax offset
The low and middle income tax offset (LMITO) will continue for the 2021-22 financial year, resulting in a potential tax saving of up to $1,080 for eligible individuals.
For more information, search 'low and middle income tax offset' on the ATO website at ato.gov.au
Improving the visibility of super assets in family law proceedings
Measures to improve the visibility of super assets in family law proceedings were announced as part of the 2018 Women's Economic Security Statement.
The Government will soon introduce legislation enabling the delivery of these measures. The ATO and the Family Law Courts will develop an electronic information-sharing mechanism to allow super assets to be readily identified during family law proceedings.
Transfer of super to KiwiSaver
KiwiSaver accounts are the New Zealand equivalent of super funds in Australia.
The Government will provide $11 million over four financial years from 2021-22 (and $1 million per year ongoing) to the Australian Taxation Office to administer the transfer of unclaimed superannuation money directly to KiwiSaver accounts.
Legacy product conversions
You will not be impacted by this Federal Budget proposal, as it will not impact public sector Defined Benefit schemes such as ESSSuper. Under this proposal, individuals who are locked into products that restrict access to capital and flexibility of drawdowns will be offered a two year conversion period to opt in to a more flexible product. There are no changes to your existing arrangements.
Here to help
We're committed to empowering you to make informed decisions about your super.
On 16 and 17 June 2021, we'll be running webinars designed to help you find out how the proposed Federal Budget 2021-22 changes could affect your super – from the comfort of your home. Reserve your place now on our Webinars page.
We encourage you to speak to our experienced consultants for information and general advice about your super. To learn more or book a virtual appointment, please contact us.