Superannuation may be confusing and that’s mostly because there are so many rules! As you’d expect there are rules about want you can’t do, but there are also rules that can be to your financial advantage.
How much you can contribute and when, will come down to your personal needs, your age, the balance of your super account and of course, in context of the ever-increasing cost of living. With the end of financial year just a few short weeks away there are decisions to make and actions to take sooner rather than later. In this article we review FIVE super matters that need your attention BEFORE June 30.
1: Contribution Caps
The annual concessional contribution cap is $27,500. If you’re employed, your employer is required to contribute 10.5% (rising to 11% from 1 July) of your income to your super fund. If that amount is less than the annual cap, you have opportunity to top it up yourself.
If you are self-employed, you have the option to pay yourself super or not (depending on your arrangements).
Thanks to the Catch-Up contribution rule, if your total super balance at 30 June 2022 was less than $500,000, you can add up all the unused contribution cap amounts over the past 5 years (starting 2018-19) and contribute all or some of that amount, to your super even if you’ve contributed the maximum annual cap amount in the current financial year.
If you are the recipient of an inheritance or perhaps you have surplus cash, you can also contribute up to $110,000 per year as a non-concessional amount. The bring-forward rule, as the name suggests, allows you to ‘bring forward’ up to three years’ worth of non-concessional contributions (i.e. up to $330,000) and pay them to your super account in the one year. Note, your Total Super Balance may restrict your ability to make these contributions – see details below.
2: Minimum Pension
During Covid the account based pension draw down amount was reduced allowing retired Australians to keep more of their retirement money in their super account. However, in the new financial year, the minimum pension amount is anticipated to revert back to the pre-Covid draw down rates. For those who have been drawing the minimum pension, you could expect your pension payments to roughly double in the next financial year.
Naturally there are pros and cons to the minimum pension increase. Cost of living concerns mean that it may be welcome, however it may also mean cash that you don’t need could languish in a bank account.
Depending on your age, there may be options for recontributing surplus cash back to your super fund and this can increase your retirement savings and potentially improve the tax position of your estate. Known as a ‘withdrawal and recontribution strategy’, it can be an effective approach to making more of your retirement savings, but as we’re discussing here, rules apply and you may need advice to make the most of any opportunity.
3: Total Super Balances
Total Super Balance (TSB) caps affect non-concessional and bring-forward contributions. Currently $1.7 million from 1 July the TSB will increase to $1.9 million.
For those who are getting close to their TSB, decisions need to be made about whether you contribute this financial year or hold your contributions until the next financial year. When you turn 75 years of age may also influence your decision making.
4: 75 years of age
Your age may be the defining factor for some of your super options this financial year.
For example, you will need to be under 75 years in the financial year you wish to implement the previously mentioned withdrawal and recontribution strategy.
While the work test no longer applies to those aged 67-74 who wish to make non-concessional voluntary contributions, you must have a TSB of less than $1.7 million with sufficient room for any non-concessional contributions to be made without exceeding the cap.
If you are turning 75 years of age soon, then you may need to contribute now (within 28 days of the end of the month of your birth) rather than later when only employer and downsizer contributions will be eligible.
However, if you have a year or so up your sleeve, it may be better to wait and take advantage of rule changes which increase the TSB to $1.9 million from 1 July.
5: Downsizer
If you are 55 years of age or older, you may be able to take advantage of the Downsizer rule.
This allows you to sell your family home and contribute up to $300,000 per person tax free and regardless of contribution caps, to each of the eligible homeowners’ respective super accounts.
There are of course other rules and conditions, but the rule doesn’t dictate replacement accommodation. That is, while some people may actually opt to downsize, it’s not a requirement to move to a home of lower value. If you have the means, you are free to purchase or move into a home of equal or greater ‘size’ or value.
Next steps
As mentioned at the beginning, super may be confusing as it has many rules with restrictions and eligibility criteria that we haven’t fully described here. It’s easy to accidentally break the rules or miss out on opportunities for making more of your super savings.
The purpose of this article is to get you thinking about super, and in particular, your options if your super balance is getting close to the TSB or your 75th birthday is coming up soon, if you’ve received an inheritance, sold an asset or you have surplus cash that could bolster your retirement savings.
As contribution cut off dates are usually a few days before June 30, now is the time to get advice that’s right for you and make your contributions early so they count for this financial year.
To discuss your end of financial year superannuation and financial planning requirements or if you have a family member, friend or colleague who is worrying about their financial future, please encourage them to contact Brett Cribb, Steve Nicholas or James Marshall on +61 (0)7 3007 2007, alternatively email info@stratusfinancialgroup.com.au, and let’s make it happen.
Stratus Financial Group helps professionals, executives, business owners, families and retirees manage their complex financial affairs and coordinate their professional advisers.
Stratus Financial Group and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306. This is general advice only and does not take into account your objectives, financial situation or needs, so you should consider whether the advice is relevant to your personal circumstances. You should also read the relevant Product Disclosure Statements (PDS) before making any financial decisions.