While some of the big super changes included in the 2021 budget are specifically targeted at older Australians, other more general adjustments are likely to have a significant impact on the lifetime value of superannuation for younger generations.

According to BDO Australia’s Paul Rafton, “The budget announcement included a number of positive changes to superannuation, which will not only benefit Australians approaching, and in, retirement, but will also benefit younger home buyers.” 

Super rate rise will go ahead

Despite speculation that the planned increase of the superannuation rate might be delayed due to the precarity of the pandemic economy, the 2021 budget confirmed that the slated bump from 9.5 per cent to 10 per cent will go ahead on 1 July 2021.

The absence of any changes to the planned rate rise has been predictably praised by super funds. 

“After employers and workers pulled the economy through a really tough year, it’s good that Australians can bank on super going to 12 per cent, but a real let down that the government didn’t take the opportunity to close the gender gap by getting super paid on paid parental leave,” said Industry Super Australia chief executive Bernie Dean.

Superannuation Guarantee $450 minimum threshold abolished

The $450 minimum threshold for employer super contributions has been abolished, paving the way for part-time and casual workers to grow their superannuation faster.

The measure will come into effect after Royal Assent of the enabling legislation, which the government expects to have occurred prior to 1 July 2022.

The abolishment of the minimum has been praised by women’s groups as the threshold causes almost twice as many women as men to miss out on super contributions when working in part-time roles.

“On average, women retire with less superannuation than men,” the Treasurer said. 

“This will improve economic security in retirement for around 200,000 women.”

Expanded access to downsizer contributions

The eligibility criteria for the government’s existing downsizer scheme (introduced in the 2017 budget) is being expanded to include Australians aged 60 years and over.

The scheme, which allows participants to make a one-off $300,000 contribution (or $600,000 per couple) to their super, was previously only available to Australians aged 65 years or older. 

According to the budget papers, “Downsizer contributions can be made after the sale of a person’s principal place of residence, held for a minimum of 10 years.”

Downsizer contributions do not count towards either concessional or non-concessional contribution cap. However, for individuals with super balances greater than the transfer balance cap, the excess will count towards the cap once the retirement phase is reached. 

“We will allow those aged over 60 to contribute up to $300,000 into their superannuation if they downsize their home, freeing up more housing stock for younger families,” Treasurer Josh Frydenberg said.

Repealing the work test for older Australians

From 1 July 2022, individuals aged 67 to 74 will no longer be required to meet the work test when making, or receiving, non-concessional superannuation contributions or salary sacrificed contributions. 

According to the government, the change acknowledges that many retirees aged 70 today potentially had 20 years or more in the workforce before compulsory superannuation was introduced and is designed to make it easier for them to get more value out of the system. 

As it stands, the work test requires individuals looking to make voluntary, non-concessional and salary sacrificed super contributions of up to $25,000 to work at least 40 hours per week over a 30-day period. 

Limits like the annual non-concessional and concessional caps will continue to apply, alongside the $1.6 million cap on lifetime superannuation contributions. Access to concessional personal deductible contributions for individuals aged 67 to 74 will also remain subject to meeting the work test.

As per the budget papers, the government projects the repeal to cost $30 million, plus another $3.7 million for implementation. 

First Home Super Saver Scheme gets a boost

Four years after its 2017 debut, the First Home Super Saver Scheme is now being updated to allow eligible first home buyers to withdraw up to $50,000 in voluntary super contributions early. 

Voluntary contributions made from 1 July 2017 up to the existing limit of $15,000 per year will count towards the total amount able to be released.

The increase in maximum releasable amount will apply from the start of the first financial year after Royal Assent of the enabling legislation, which the government expects will have occurred by 1 July 2022.

This measure will ensure the FHSSS continues to help first home buyers in raising a deposit more quickly. This measure is estimated to decrease the underlying cash balance by $25 million over the forward estimates period.    

Pension Loans Scheme improved

The government is amending the existing pension loans scheme in order to make it more appealing and offer accessible options to senior Australians. 

The PLS is a voluntary, reverse mortgage type loan available to assist older Australians who wish to boost their retirement income by unlocking equity in their real estate assets. 

From 1 July 2022, the government will introduce a No Negative Equity Guarantee for PLS loans.

Under the changes, PLS borrowers will no longer owe more than the market value of their property in circumstances where their accrued debt exceeds their property value.

Pensioners will also have access to a new capped advance payment in the form of a lump sum equal to 50 per cent of their maximum Age Pension ($12,385 per year for singles, $18,670 per year for couples).

A maximum of two advances are permitted in a single year. 

Both reforms to the PLS system have been welcomed by industry advocacy groups.

Reacting to the changes, Pension Boost said, “We are very delighted to see that this important protection for seniors will be introduced to level the playing field for all reverse mortgage solutions.”

SMSFs residency requirements relaxed 

The government will relax residency requirements for self-managed super funds and small APRA-regulated funds, extending the central management and control test safe harbour from two to five years.

The active member test for both SMSFs and SAFs is also being removed. 

According to the budget, “this will provide SMSF and SAF members the flexibility to keep and continue to contribute to their preferred fund while undertaking overseas work and education opportunities”.

Government investment in consumer outcomes 

The government will provide $11.2 million over four years from 2021-22 (and $3.1 million per year ongoing) to support stronger consumer outcomes for members of superannuation funds.

$9.6 million will go towards the Australian Prudential Regulation Authority to supervise and enforce increased transparency and accountability measures as part of the government’s Your Future, Your Super reform.

The remaining $1.6 million is slated for Super Consumers Australia to support stronger consumer outcomes on behalf of superannuation fund members. 

The government said that funding for this initiative will be partially offset through an increase in levies on regulated financial institutions.

Early release of super for victims of family/domestic violence scrapped

Although the proposal was more or less dumped back in March after an internal review, the 2021 budget formally confirmed that the government will not allow victims of family and domestic violence early access to their superannuation fund. 

Legacy product conversions for retirees

The government is looking to help consumers transition from legacy retirement options to more modern alternatives through a two-year conversion period. 

This effort promises to allow consumers to more effectively use their retirement savings for large expenses and reduce costs for the superannuation system. 

Although it will not be compulsory, retirees who take advantage of the two-year conversion period (beginning 1 July 2021) will be able to fully commute their current retirement product and convert the underlying capital (including reserves) into a superannuation fund account in the accumulation phase.

Commuted reserves will not be counted towards an individual’s concessional contribution cap, nor will they trigger excess contributions. Instead, they will be taxed as an assessable contribution of the fund. 

According to the government, “From there they can decide to commence a new retirement product, take a lump sum benefit, or retain the funds in that account.”

While exiting a product will not trigger re-assessment of the social security treatment of the product for the period prior to conversion, existing rules for income streams will continue to apply. 

The existing transfer balance cap valuation methods for the legacy product, including on commencement and commutation, continue to apply.

The legacy retirement product conversion scheme will apply to market-linked, life-expectancy and lifetime products which were first commenced before 20 September 2007 from any provider, including self-managed superannuation funds. 

It will not cover flexi-pension products offered by any provider. It also excludes lifetime products offered by large APRA-regulated defined benefit schemes and public sector defined benefit schemes.