With the new financial year having started, now is the perfect time to review the numerous changes recently made to superannuation and to understand their impacts.

Below is an outline of some of the key initiatives and changes.

Superannuation Guarantee (SG) to rise to 10%

On 1 July 2021, the SG rate increased from 9.5% to 10%. This extra 0.5% contribution to superannuation may impact take-home pay of full-time, part-time and casual employees depending on whether it is covered by their employer or taken from their base salary.

The SG is legislated to continue to increase to 12% by 2025. It is important to factor these increases into salary negotiations, superannuation contributions and budgeting processes.

Changes to superannuation rates and thresholds

On 1 July 2021, increases to the thresholds for a number of existing superannuation measures came into effect.

These include increases to the amount that can be voluntarily contributed to superannuation, either through salary sacrifice or by making an after-tax contribution.

The key changes are:

  • Concessional (before-tax) contributions cap to increase from $25,000 to $27,500
  • Non-concessional (after-tax) contributions cap to increase from $100,000 to $110,000
  • General transfer balance cap (the limit on how much superannuation can be transferred into a tax-free superannuation pension account) to increase from $1.6 million to $1.7 million

A new way of calculating transfer balance caps was introduced on 1 July 2021, using indexation. Indexation means there will not be a single cap that applies to all individuals. Instead, every individual will have their own personal transfer balance cap of between $1.6 and $1.7 million, depending on their circumstances.

To find out how a transfer balance cap will be calculated, please refer to the Australian Taxation Office website.

Extension of the ‘bring-forward’ age up to 67

For individuals who make contributions above the annual non-concessional contributions cap, the bring-forward arrangement allows eligible people to access future year caps and make extra non-concessional contributions without having to pay extra tax.

Previously, the bring-forward measures allowed those people under the age of 65 to make non-concessional contributions at any time in any financial year of up to three times the annual non-concessional contributions cap in that financial year.

The bring-forward rule has now been amended and extended to individuals under the age of 67 and became effective from 1 July 2020.

This means individuals may be able to make up to three years’ worth of non-concessional contributions in a single year, which for 2021/22 could be up to $330,000.

For details about eligibility, please refer to the Australian Taxation Office (ATO) website.

Extension in minimum drawdown rates

The temporary reduction in superannuation minimum drawdown rates has been extended to 30 June 2022, giving retirees the option to manage income payments differently during times of uncertainty.

FY22 Table

Increase in the number of SMSF members

On 1 July 2021, the maximum number of allowable members within an SMSF increased from four people to six people.

SMSFs are often used by families to jointly manage their superannuation savings and investment strategies, so this increase provides greater flexibility and choice between generations.

Low and Middle-Income Tax Offset extension

The Low and Middle-Income Tax Offset has been extended for an additional 12 months, to 30 June 2022. Individuals with a taxable income between $37,001 and $126,000 may be eligible for an offset amount of up to $1,080.

The amount of offset received depends on individual circumstances, such as taxable income and how much tax has been paid.

Within the 2021/22 Budget, announced on Tuesday 11 May 2021, there were a number of changes designed to simplify other superannuation rules in the coming years and increase flexibility for older Australians wanting to save for their retirement.

To read more about the changes announced in the 2021/22 Budget across superannuation, taxation and aged care, please read our summary here.