Q3 2022 Budget Update - Resource Super

Q3 2022

BUDGET UPDATE

The 2022-23 Federal Budget was touted as one for the times we live in—with spending initiatives focused on helping with the cost of living, increasing home ownership, and keeping Australians safe with increased spending on defence, cybersecurity and pandemic preparedness.

BUDGET UPDATE

The only superannuation measure in the budget related to those who are already retired. This was the proposal to extend the 50% temporary reduction in minimum withdrawal rates for a further year to 30 June 2023.

50% discount on pension minimum.

The Government has extended the 50% discount on the minimum pension drawdown rate, which began in March 2020 following the start of the COVID-19 pandemic. This means individuals will continue to have the option to reduce payments by 50%. For example, if an individual is between ages 60 to 64, the minimum pension payment is 4%, they can choose to draw 2% for the financial year.

This extension applies to the end of June 2023.

Below are the changes from last year’s budget, which come into effect from 1 July 2022

Increase in the Super Guarantee rate

Workers who are eligible to receive the Superannuation Guarantee (SG), which is the contribution employers are required to make into super, can expect an increase from 10% to 10.5% from 1 July 2022.

In recent years the government has implemented progressive increases with the aim to reach 12% SG by 1 July 2026.

Eligibility age for downsizer contributions lowered to 60

The eligibility for downsizer contributions will be lowered from age 65 to 60, allowing retirees to contribute up to $300,000 to their super following the sale of their home. Couples will be eligible to contribute up to $300,000 each.

It’s important to note that proceeds from the home sale that are transferred to super accounts will be included in the asset test for the Age Pension. The downsizer contributions do not count towards the concessional and non-concessional caps.

The principal place of residence will remain exempt from the asset test.

First Home Super Saver Scheme

The First Home Super Saver Scheme (FHSSS) helps individuals boost their savings for a first home by allowing them to build a deposit inside superannuation, giving them a tax cut. Superannuation guarantee contributions made by your employer, and spouse contributions cannot be released under the FHSS scheme.

From 1 July 2022, the maximum amount of voluntary contributions that can be released under the FHSSS will be increased from $30,000 to $50,000.

The principal place of residence will remain exempt from the asset test.

Abolishing the work test for people aged between 67 and 74

If you’re 67 or older, the annual work test is used to prove you are gainfully employed*. Meeting the test requirements means you can continue to contribute to super and enjoy its tax benefits.

From 1 July 2022, you can make or receive after-tax super contributions and salary sacrificed contributions without meeting the work test, provided you remain under the current annual contribution caps and your balance is less than $1.7 million.

Here’s how it works:

If you’re making contributions to your super, you can continue to make before-tax contributions up to $27,500 a year, minus any other before-tax contributions you receive, such as employer contributions. You may also have a higher before-tax limit, if you have ‘unused’ amounts from previous years.
If your total super balance is less than the after-tax contributions cap, you can now make additional after-tax contributions up to $110,000 a year. You may also use the ‘bring forward’ rule to make after-tax contributions of up to $330,000.

That said, if you want to make an after-tax contribution for which you plan to claim a tax deduction (referred to as a ‘personal deductible contribution’), then you still have to meet the work test requirements.

First proposed in the 2021-22 Federal Budget, this measure could be a further boost to anyone wanting to add to super after turning 67.

*For 40 hours or more in any 30-day period in a financial year in which you make the contributions.

Removal of $450 monthly income threshold

In a move that’s widely considered to make super fairer, the government has passed the long-awaited bill to remove the minimum monthly income threshold for compulsory super guarantee to apply.

At the moment, if you earn less than $450 a month (before tax), your employer doesn’t have to pay you any super. What’s more, even if you’re doing two or three jobs, which together give you a good income, you still won’t get any super if each of those jobs pay you less than $450 (before tax).

The passing of the bill means, from 1 July 2022, you will be eligible to receive compulsory employer super guarantee payments, no matter how much you earn.

This move was first proposed in the 2021-22 Federal Budget, and many believe that it will make super fairer and boost women’s financial security in retirement.

Young people and women often do casual or part-time work. In fact, the peak industry body, the Association of Superannuation Funds of Australia (ASFA) believes removing the income threshold will benefit around 300,000 people, of whom approximately 63 per cent are female.

Overall, this measure means more super for those on a low income, leading to better retirement outcomes—after all, even small amounts of super can make a difference in the long term.

Source: Total Risk Management as the trustee of the Russell Investments Master Trust and the Australian Tax Office website.

This document provides general information only and has not been prepared having regard to your specific objectives, financial situation or needs. Before making an investment decision, you need to consider whether this information is appropriate to your objectives, financial situation, and needs. The information has been compiled from sources considered to be reliable but is not guaranteed. Any examples have been included for illustrative purposes only and should not be relied upon for the purpose of making an investment decision.