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2021-22 Federal Budget summary

12 May, 2021

On Tuesday 11 May 2021, the federal government released its 2021-22 Budget. The following is a summary of the announced measures from the 2021-22 Federal Budget in relation to Australians’ super and retirement.

Note that this summary provides highlights of the Budget announcements; additional detail can be found in the government’s Budget fact sheets. This summary is not intended to communicate Sunsuper’s view or opinion on the proposals. Finally, also note that the announcements still need to be passed in Parliament before they become law.

Read Sunsuper Chief Economist Brian Parker’s summary of the expected economic impact of the Budget.

Overview of the 2021-22 Federal Budget super announcements

The focus of this year’s Budget is on initiatives designed to maintain and grow Australia’s post-pandemic economic recovery, which has been better than expected. While a number of superannuation and retirement measures were announced, most are either changes or adjustments to existing measures.

For super members

Removing the $450 monthly income threshold for SG contributions

Proposed start date: 1 July 2022

The government proposes to remove the $450 minimum monthly income threshold, under which employers do not have to pay Super Guarantee contributions for their employees. Currently, this income threshold prevents many low-paid workers, particularly women, from receiving compulsory super contributions.

This measure will improve equity in the superannuation system by expanding the Super Guarantee coverage for those on lower incomes. The $450 monthly threshold prevents an estimated 300,000 low paid workers, 63% of whom are female, from receiving mandatory employer super contributions. The removal of this threshold will ensure this cohort of workers are paid super.

Increasing the maximum threshold for First Home Super Saver Scheme

Proposed start date: 1 July 2022

In a change to an existing measure, the government proposes to increase the maximum voluntary contribution withdrawal threshold for the existing First Home Super Saver Scheme to $50,000, from $30,000.

The government proposes to increase the maximum amount of voluntary contributions aspiring first home buyers can take from the First Home Super Saver Scheme, to $50,000.

This scheme allows people to make voluntary contributions to superannuation to save for their first home. At present the contributions made that can be subsequently released under the scheme are capped at $30,000.

Under the proposed change, contributions into a super fund through salary sacrifice or voluntary after-tax contributions can be subsequently released up to a maximum of $50,000 in total. Where there is a couple involved, both individuals would be able to release up to a maximum of $100,000.

This scheme relates to voluntary contributions only. First home buyers cannot withdraw any part of their compulsory super savings under the scheme i.e. superannuation guarantee contributions made on their behalf by their employer.

The eligibility requirements are that the person is a first home buyer, either lives in the premises they are buying, or intends to live in it as soon as practicable, and intends to live in the property for at least six months within the first 12 months they own it.

Improving the visibility of super assets in family law proceedings

The government announced it will shortly introduce legislation to allow super assets to be identified readily during family law proceedings.

The measure was announced as part of the 2018 Women’s Economic Security Statement and had been scheduled to commence on 1 July 2020 but the government advised the measure was delayed due to COVID-19.

The government confirmed an electronic information sharing mechanism is being built between the Australian Taxation Office (ATO) and the Family Law Courts to allow super assets to be identified readily during family law proceedings. Allowing the ATO to provide this information to the Courts will ensure more just and equitable super splitting outcomes for members, particularly women.

Increasing funding for transfer of superannuation to the KiwiSaver Scheme

Proposed start date: 1 July 2021

The government proposes to provide $11 million over four years from 2021-22 (and $1 million per year ongoing) to the Australian Taxation Office to administer the transfer of unclaimed superannuation money directly to KiwiSaver accounts (the New Zealand equivalent of Australian superannuation funds).

For retirees

Lowering the age threshold for downsizer contributions

Proposed start date: 1 July 2022

In another change to an existing measure, retirees who downsize their family home would be able to contribute $300,000 to superannuation ($600,000 for couples) at age 60, down from age 65.

Downsizer contributions do not count towards the concessional (pre-tax) or non-concessional (post-tax) contribution caps. People with balances above the total super balance cap of $1.6 million (to rise to $1.7 million on 1 July 2021) are also able to make the downsizer contribution, which is also exempt from the work test. The downsizer contribution amount will count towards the $1.6 million (also rising to $1.7 million on 1 July 2021) transfer balance cap when transferring the balance to a retirement pension-phase account, where the earnings are tax free.

Abolishing the work test for those aged between 67 and 74 years

Proposed start date: 1 July 2022

The government announced it plans to abolish the work test, which requires people aged between 67 and 74 to be gainfully employed for at least 40 hours over 30 consecutive days during the financial year before they can make concessional or non-concessional superannuation contributions.

The change would allow individuals aged 67 to 74 years (inclusive) to make non-concessional (including under the bring-forward rule) or salary sacrifice superannuation contributions without meeting the work test, subject to existing contribution caps.

The existing $1.6 million cap on lifetime superannuation contributions will continue to apply (increasing to $1.7 million from 1 July 2021). The annual concessional and non-concessional caps will also continue to apply.

Other measures relevant to retirees

Rationalising legacy products

Proposed start date: 1 July 2021

The government announced it will allow individuals in self-managed super funds to exit a specified range of legacy retirement products for a two-year period. The measure will include market-linked, life-expectancy and lifetime products, but not flexi-pension products or a lifetime product in a large APRA-regulated or public sector defined benefit scheme.

Retirees with these products, and who choose to, will be able to completely exit these products and transfer the underlying capital, including any reserves, back into a superannuation fund account in the accumulation phase. From there they can decide to commence a new retirement product, take a lump sum benefit, or retain the funds in that account.

Any commuted reserves will not be counted towards an individual’s concessional contribution cap. Instead, they will be taxed as an assessable contribution of the fund (with a 15 per cent tax rate), recognising the prior concessional tax treatment received when the reserve was accumulated and held to pay a pension. Existing social security treatment of the legacy product will not transition for those electing to convert, with no re-assessment of the social security treatment of the product for the period before conversion.

The government also announced it will establish an industry working group to develop and consult on the design of a streamlined mechanism to facilitate the transfer of policyholders from closed life insurance products and managed investment scheme products to new products.

Increasing the flexibility of the Pension Loan Scheme

Proposed start date: 1 July 2022

The government plans to improve the flexibility of the Pension Loans Scheme (PLS) by providing access to advance payments by allowing participants to access up to 26 fortnights’ worth of top-up payments as a lump sum and introducing a ‘no negative equity guarantee’. This would provide immediate access to lump sums of around $12,000 for singles, and $18,000 for couples.

No negative equity guarantee would mean that borrowers under the PLS, or their estate, would not owe more than the market value of their property, in the rare circumstances where their accrued PLS debt exceeds their property value.

The change would bring the PLS in line with private sector reverse mortgages. Read more about the 2021-21 Budget announcements in the government’s Budget fact sheets.

Previous Budget measures scheduled to come into effect on 1 July 2021

The Your Future, Your Super measures proposed in the October 2020 Budget – which include a measure that would staple everyone to their current superannuation fund and apply performance testing to many funds – are scheduled to come into effect on 1 July 2021. However, as the legislation is still before Parliament, the final scope of the proposed reforms and their implementation date is not yet known.

The Budget announcements did not reaffirm the scheduled increase in the Super Guarantee rate to 10% from 1 July 2021, with further gradual increases each year to 12% by 2025-26. However, given the increase to 12% has been previously legislated, it is assumed it will proceed as indicated.

New thresholds on 1 July 2021 for some existing measures

While not part of the 2021 Federal Budget announcements, it is worth noting that a number of existing super related rates and thresholds will increase from 1 July 2021, including increases to the amount members can voluntarily contribute to super through either salary sacrifice or by making a non-concessional contribution.

The key super rates and thresholds for 2021-22 are:

  • The concessional contributions cap is $27,500, up from $25,000.
  • The non-concessional contributions cap is $110,000, up from $100,000.
  • The general transfer balance cap is $1.7 million, up from $1.6 million (noting individual circumstances can impact the operation of the transfer balance cap).