Paul's Insights: Growing super for longer
The 2019/20 Federal Budget has been handed down, and predictably, we saw some fine-tuning of the rules around super. But the news is all good - the latest changes will make it easier for older Australians to grow their retirement savings for longer.
For many of us, 60 really is the new 50. We’re not just living longer, we also tend to work for longer. In the 1990s, less than one in 10 workers were older than 55. Today that figure is closer to one in five.
So it makes sense to create some flexibility around adding to our super past the age of 60. This is especially important as today’s 60-somethings haven’t had the benefit of employer-paid super contributions throughout their entire working lives.
At present some fairly restrictive rules apply. If you’re aged over 65, you can only make a voluntary personal super contribution if you pass a work test. That means working at least 40 hours over a 30-day period each year.
The Federal Budget is aiming to change this. From 1 July 2020, people aged 65 and 66 will be able to add to their super without having to satisfy a work test. You’ll only need to meet the work test if you’re aged 67 to 74.
Similarly, if you’re aged 65 or 66, you’ll be able to make three years’ worth of after-tax super contributions, currently limited to $100,000 annually, in a single year. This will mean being able to contribute a total of $300,000 at a time – provided you make no further similar contributions in the following two years, an option that’s currently only available to under-65s.
The Budget is also proposing greater flexibility around someone else topping up your super savings. The age limit for spousal contributions will be raised to 74, up from the current limit of age 69.
Of course, these measures are not set in stone. Not only do any Budget initiatives have to pass through parliament, they also hinge on the Morrison Government being re-elected.
Nonetheless, steps that allow older Australians to grow their super make a lot of sense. Many people are still playing catch-up with their retirement savings even well into their 60s. And this can be a time of life when people are better placed financially to make voluntary contributions.
Looking ahead, these initiatives could also be the start of aligning our super system more closely to the day when the Age Pension eligibility age rises to 67 in 2023.
Paul Clitheroe is Chairman of InvestSMART, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.