Super changes in play now and upcoming
An important aspect of being in the superannuation industry is being aware when change is afoot. And there are some changes around the corner that will impact all Australians that hold superannuation.
Let's run through the main ones here:
1. Superannuation guarantee increases from 1 July 2021
As I wrote in the article “A review of the scheduled increases in SGC - cases for and against”, the Superannuation Guarantee (SG) will increase from 9.5 per cent to 10 per cent from 1 July 2021. This increase in SG is in line with legislation that seeks to increase the SG to 12 per cent by 1 July 2025. The impact of this piece of legislation is twofold in the economy.
Firstly, it will reduce the take-home salary of employees that are in receipt of employment packages. Secondly, it will increase employer costs for employees that work on an hourly rate. Both the employee and business owners will be impacted by a decrease in their cashflow because of the SG change.
2. Pension 50 per cent reduction in pension minimum payments ends 30 June 2021
An article written last year foretold the impending pension relief, “Could it be deja-vu on minimum pension drawdown relief”, but now we are approaching the end of that relief. The regulation (SIS Regulation) applies to specific financial years, and the regulation was amended to provide a 50 per cent pension payment relief for the 2019/2020 and 2020/2021 financial years only.
Unless the government again goes back and implements the same phasing of pension relief as it did post-GFC, superannuants in receipt of pensions will have their minimum pension payments revert to their normal rates. A history of pension relief measures post-GFC can be found in my above-mentioned article.
3. Indexation - transfer balance cap
As I recently wrote, indexation of the transfer balance has been triggered and will be effective from 1 July 2021 (based on the December CPI figures). The cap refers to the maximum balance that a pension can be commenced with.
The cap will move from $1.6m to $1.7m, and individuals that have not triggered the $1.6m cap will have the opportunity to proportionately benefit from the indexation. The indexation of the transfer balance cap has a cascading impact on contributions in upcoming years.
4. Indexation – concessional contribution cap
Indexation of the concessional contribution cap is based on the full-time average weekly ordinary times earnings (AWOTE) which is issued twice a year. Indexation occurs in increments of $2,500, therefore the indexed value needs to exceed $27,500 for the annual concessional contribution cap to increase. Based on the June 2020 AWOTE figures, the CC cap has exceeded $27,500.
Industry is waiting for the December quarter figures to confirm that AWOTE hasn’t decreased and give the green light to the indexation of the concessional contribution cap from 1 July 2021. Note that AWOTE has been impacted by JobKeeper payments and other COVID-19 impacts on labour.
The December AWOTE will be released on 25th February 2021. Also, note that the ATO officially releases the concessional cap details for future financial years in late March of each year.
5. Indexation – non-concessional contribution cap & bring forward rules
Similar to the indexation of concessional contributions, indexation occurs for this cap in increments of $10,000, therefore, the indexed value needs to exceed $110,000 for the annual non-concessional contribution cap to increase.
As mentioned above, the December 2020 AWOTE data, due for release in late February, will determine whether this cap is increasing from 1 July 2021, which the ATO will officially announce in late March. Individuals can only utilise the non-concessional cap if they are eligible, which is determined by their total super balance.
Furthermore, should the non-concessional contribution cap increase to $110,000, the bring forward rules will also change, both in the dollar amount that can be contributed as well as the thresholds phasing out to the total super balance cap.
The above is not a definitive list of current and upcoming changes to superannuation. The above does open up the need to review your superannuation in light of current and future changes to ensure you are taking advantage of the available opportunities.
Frequently Asked Questions about this Article…
From 1 July 2021 the Superannuation Guarantee (SG) rises from 9.5% to 10%. This legislated step is part of a schedule to lift SG to 12% by 1 July 2025. For employees on salary packages the higher SG can reduce take-home pay, and for hourly workers it increases employer costs — meaning both employees and business owners may see reduced cashflow as more pay is directed into super.
No. The 50% reduction in minimum pension drawdowns applied only for the 2019/20 and 2020/21 financial years under an amended SIS regulation. Unless the government introduces another relief measure, minimum pension payments will revert to their normal rates from 1 July 2021.
Indexation adjusts the transfer balance cap — the maximum amount you can have when starting a super pension — based on CPI. The cap is indexed from $1.6 million to $1.7 million effective 1 July 2021 (triggered by December CPI figures). If you haven’t previously used the $1.6m cap you may proportionately benefit from this increase, and the change will affect contribution opportunities in coming years.
Concessional cap indexation is tied to AWOTE and moves in $2,500 steps; the cap must exceed $27,500 before it increases. Industry data showed June 2020 AWOTE exceeded that threshold, and the December quarter AWOTE (released 25 Feb 2021) and the ATO’s late-March announcement will confirm any change from 1 July 2021. Non-concessional caps index in $10,000 steps and must exceed $110,000 to rise; if it does increase, the bring-forward rules and the total super balance thresholds that determine eligibility will also change.
Review your super arrangements to understand the impact of the SG rise, the end of pension drawdown relief, and cap indexation. Check your total super balance to see contribution eligibility, watch ATO announcements (late March) about caps, and consider talking to a financial adviser or your super fund about contribution strategies and pension planning so you can take advantage of any new opportunities and manage cashflow impacts.
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