Shadforth news

Super news for the new financial year

23 August, 2021

From 1 July 2021, there were some exciting changes to super including an increase to the Super Guarantee amount and to the super contribution caps.

Increase to the Super Guarantee

From 1 July 2021, the Super Guarantee (SG) rose from 9.5% to 10%. This is good news to help you and other working Australians save for retirement.

What is the Super Guarantee?

If you are working, your employer is generally required to contribute to your super fund from your pre-tax salary on your behalf. This is known as the Superannuation Guarantee or SG. Most employees who are aged 18 and above and are earning more than $450 per month are eligible for SG contributions. This applies whether you are full-time, part-time or employed on a casual basis.

What do you need to do?

Generally, you don’t need to do anything. Your employer will arrange the increase with your super fund on your behalf. If you are remunerated on a ‘base plus super’ basis, this will result in an increase to your overall salary. However, if you are on a packaged structure, this change may impact your take home pay, so we suggest you discuss this with your employer.

Increase in super contribution caps

On 1 July 2021, the super contribution ‘caps’, or limits increased for both concessional and non-concessional super contributions. These increased limits give you the opportunity to increase your super savings and potentially save on tax.

What are Concessional contributions?

These are super contributions made either by your employer, from your pre-tax income (salary sacrifice contribution) or contributions for which you claim a tax deduction. They are generally taxed at only 15 per cent instead of your marginal tax rate.

What are Non-concessional contributions?

These are super contributions made from your after-tax income. They are tax-free going into your super.

What are the old and new contribution caps?

 

Old Caps FY20

New cap FY21

Concessional

$25,000

$27,500

Non-concessional

$100,000

$110,000

For more information on maximising your super refer to the Government’s MoneySmart website.

*In some circumstances you may also be eligible to utilise previous year’s unused concessional contribution cap amounts

Making the most of the ‘bring forward rule’

The Government has increased the age at which you can take advantage of the ‘bring forward rule’ - from age 64 or younger at 1 July of the financial year to age 66 or younger at 1 July of the financial year.

This means if you are age 66 or younger at 1 July 2021, you may be eligible to ‘bring forward’ and use up to two future year’s worth of your non-concessional contribution caps. Depending on your total superannuation balance this may allow you to contribute up to $330,000 (3 x $110,000) into super this financial year.

If you are age 67 or over you generally need to meet a 'work test' tor a work test exemption to make a personal contribution to super such as a non-concessional contribution. More information can be found via the Australian Taxation Office.

Super fund stapling

In the 2020 Federal budget, the Government announced a series of reforms including the ‘stapling’ of super accounts.

This means that if you change jobs, after 1 November 2021, your new employer will be required to go to the ATO and get details of your ‘stapled’, or existing, fund before opening a new default account on your behalf. Your new employer will make contributions into your existing account without you needing to provide them with your super fund details or opening a new account.

The reason why the Government has made this change is to reduce the instances where people accumulate two or more super accounts when they change jobs, which can result in Australians paying more fees than necessary and eroding their super balances.

If you wish to, you can advise your employer to make contributions to a different super fund at any time. The employer can only contribute your super to their default fund if you do not have a stapled fund or if you have not yet chosen a fund.

Minimum pension drawdowns

In response to the current environment, the Government has announced a number of measures to help minimise the impact of current economic conditions on retirees. One measure is the temporary halving of the minimum that you must draw from your super pension each financial year.

The reduction applied for the 2019/20, the 2020/21 financial year and has been extended to the 2021/22 financial year.

Age

Default minimum drawdown rates

Reduced minimum drawdown rates for 2019/20, 2020/21 and 2021/22

Under 65

4%

2%

65 to 74

5%

2.5%

75 to 79

6%

3%

80 to 84

7%

3.5%

85 to 89

9%

4.5%

90 to 94

11%

5.5%

Age 95 or more

14%

7%

Changes to self-managed super funds

From 1 July 2021, the maximum number of members allowed in new and existing self-managed super funds (SMSFs) and small APRA funds has increased from four to six. Before making a decision to add members to your SMSF you should consider the advantages and disadvantages that may impact you.

Advantages of adding members to an SMSF

  • Allowing larger families to include more or all their family members in a single SMSF, rather than having multiple SMSFs (which would incur extra costs) or using other super funds such as retail super funds.
  • Potential cost savings in the administration of the fund (depending on the size of investments),
  • allowing the fund to have more purchasing power and diversify their investments.
  • Helping with liquidity issues (eg meeting minimum pension requirements, financing borrowing arrangements via LRBAs).
  • For funds that hold reserves, reducing the time needed to reduce the reserve balance (ie allocate it to member accounts) without exceeding the members’ concessional contributions caps.

Disadvantages of adding new members to an SMSF

  • Trustee decisions must be made in the best interests of all beneficiaries – more beneficiaries mean there are more interests to consider.
  • An increase in the number of members across potentially a larger range of age categories may result in some members having different risk profiles requiring different investment strategies, which could change over time. This could bring greater complexity and administrative issues.
  • With six member funds, if something goes wrong, the ATO administration penalties apply to each of the six individual trustees. This can result in penalties of up to six times that of a corporate trustee.
  • The existing trustees /directors risk being ‘out-voted’ in the running of the fund without adequate controls. There would be a greater need to develop a workable dispute resolution process for the fund and have it documented in the trustee deed/or constitution of the corporate trustee. For example, who’s going to be making decisions? How could you ensure the right people are making decisions? What happens if one member loses mental capacity? What happens if you don’t like one of the members? Can you get rid of them?

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If you have any questions about the recent changes to super, please contact us.