Over the last 20 years, since 1999, the percentage of Australians age 65 years or over increased from 12.3% to 15.9%. This group is projected to increase more rapidly over the next decade, as more baby boomers (people born between 1946 and 1964) turn 65.1
For the Government, an ageing population means less people in the workforce generating revenue through income tax and more people in need of government support such as the Age Pension.
To reduce the cost of an ageing population on society, there are a number of policies the Government has proposed or implemented.
Your birth date
Your Age Pension age
Date the change starts
1 January 1954 to 30 June 1955
1 July 2019
1 July 1955 to 31 December 1956
66 years and 6 months
1 July 2021
On or after 1 January 1957
1 July 2023
To encourage people to stay in the workforce longer and save more for retirement, the Government has commenced an incremental increase to the Age Pension age from 65 to 67. This began in the 2017/18 financial year, with the qualifying Age Pension age to increase to age 67 by 2023/24. A further increase to age 70 was proposed in the 2018/19 Federal Budget, but the Government did not go ahead with this increase.
The superannuation system, as we know it today, was introduced in 1992. People retiring this year would have received compulsory super for about 28 years. People retiring in 2040 may have been receiving compulsory super contributions for their entire working life which could be up to 50 years.2
The Government has legislated for the compulsory superannuation contribution (the Superannuation Guarantee made by employers) to be increased from 9.5% to 12% by 2025.
This will result in increasing average super balances for Australians over the coming decades, potentially taking the pressure off government resources and taxpayer funding.
The Government has also proposed increasing the age that people can make a voluntary contribution to super without satisfying the ‘work test’ or work test exemption. This brings it in line with the new Age Pension age of 66.
Currently, people between age 65 and 74 must satisfy the work test or work test exemption before making a voluntary super contribution.
To satisfy the work test exemption, you need to have worked a minimum of 40 hours over a 30-day period in the previous financial year. You must also have a total super balance of less than $300,000 as at the end of the last financial year.
Recently redundant and just over age 65?
If you have recently been made redundant and are just over 65, you may be eligible for a tax-free component that your employer was not aware of.
Currently, these payments are tax-free up to a base amount of $10,638 plus $5,320 for each completed year of service.
Before 1 July 2019, for a termination payment to be considered ‘genuine redundancy’ and therefore eligible for generous tax concessions, your redundancy needed to occur before you reached age 65.
From 1 July 2019, people up to Age Pension age (currently 66) who are made redundant and receive a termination payment may qualify to treat the termination payment as a concessionally taxed genuine redundancy payment. This change did not become law until 28 October 2019 meaning some employers may not have recognised the payment as a genuine redundancy and withheld too much tax. This means you may be eligible for a generous tax refund when you lodge your tax return.
Please contact us or your accountant to discuss.
2 Reference: Parliamentary Budget Office, Australia’s ageing population: Understanding the fiscal impacts over the next decade.