Changes to superannuation after 1st July 2022
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Changes to the superannuation guarantee
- Before 1 July 2022 – the superannuation guarantee rate was 10%
- From 1 July 2022 – the super on salary payments employers are required to make for employees on or after 1 July is now 10.5%.
- From 1st July 2023 – the superannuation guarantee rate will increase to 11%.
The Superannuation Guarantee (SG) in Australia is a mandatory contribution system implemented by the government to ensure that employees have a retirement fund. It requires employers to contribute a percentage of their employees’ ordinary time earnings into a superannuation fund. the whole system is in place to support employees in building their retirement savings so they have money to live off when they are no longer working.
Important aspects of the Superannuation Guarantee:
Retirement Savings:- SG helps employees accumulate savings for their retirement, supplementing the Age Pension and providing financial security. Superannuation funds invest the contributions, aiming to grow the savings over the employee’s working life.
Tax Benefits:- Contributions and investment earnings are taxed at a concessional rate, often lower than the individual’s marginal tax rate. Employees can also make their own concessional contributions, attracting tax benefits.
Insurance:- Many superannuation funds provide life and disability insurance coverage, offering financial protection to the employee and their family.
Legal Obligation:- Employers are legally obligated to make SG contributions on behalf of their employees. Failure to comply results in penalties.: The SG rate is a percentage of the employee’s earnings and is set by law. It has been increasing over the years to provide better retirement savings.
Employee Welfare:- Contributes to the welfare of employees, leading to increased morale and retention. This provides a sense of financial security for employees’ future.
Operational:- The system is well-established, making it easy for employers to comply. Employers can offer additional contributions as part of the remuneration package to attract and retain talent.
Initially, the SG was set at a lower rate, and over the years, it’s planned to incrementally increase. For instance, it was set to increase to 10% in July 2021 from 9.5% and then gradually rise to 12% by 2025. Employers need to adapt to these changes to ensure they are compliant with the law and that their employees are receiving the correct superannuation contributions.
The SG system plays a crucial role in ensuring Australians have funds for their retirement, reducing reliance on the Age Pension and providing financial independence and security in retirement. It’s a key component of Australia’s retirement income policy, along with the Age Pension and voluntary savings.
Removal of the $450 monthly income threshold
From 1 July 2022, the Australian Government removed the $450 per month threshold for super guarantee eligibility (that’s the amount an employee can earn in a calendar month before you have to pay them super). This means you need to pay super guarantee contributions on all ordinary time earnings.
- Before 1 July 2022 – Employers were not required to make super guarantee payments for employees who did not earn $450 in one month.
- From 1 July 2022 – Super is now required for all employees who are paid salary and wage payments – regardless of how much they earn each month. The only exception is that employees under 18 will still need to work more than 30 hours in a week to be eligible for super.
The threshold meant workers were only entitled to SG contributions if they were over the age of 18 and earned $450 or more from an employer (before tax) per calendar month. Workers under 18 years of age were only entitled to SG contributions if they worked more than 30 hours in a week and earned $450 or more (before tax) per calendar month.
Treasury’s 2020 Retirement Income Review Final Report notes that around 300,000 people, or 3 per cent of the workforce were affected by this exception from SG contributions. They were mainly young, lower income and part-time workers, and almost two-thirds of them were women. The removal of the threshold is legislated and came into effect on 1 July 2022.
Changes to voluntary contributions
- Before 1 July 2022 – to make voluntary super contributions over the age of 67, you were required to meet a work test requiring you to work in gainful employment for a minimum of 40 hours over 30 consecutive days.
- From 1 July 2022 – If you are aged between 67 – 74, you can now make voluntary super contributions without the need to meet the work test.
For Australian superannuation, a voluntary contribution refers to the extra money that individuals choose to add to their superannuation fund beyond the mandatory Superannuation Guarantee contributions made by their employer. These contributions are optional and can be made from an individual’s after-tax income or pre-tax salary, depending on the type of voluntary contribution. There are primarily two types of voluntary contributions: concessional and non-concessional.
1. Concessional Contributions:
- Pre-Tax Contributions: These are made from your pre-tax income and are taxed at the concessional rate of 15% when entering the super fund.
- Includes: Employer contributions above the mandatory SG, salary sacrifice arrangements, or personal contributions that you claim as a tax deduction.
- Caps: There are annual limits on the amount of concessional contributions you can make, which include both employer contributions and voluntary pre-tax contributions.
2. Non-Concessional Contributions:
- After-Tax Contributions: These contributions are made from your after-tax income, meaning they have already been taxed at your marginal tax rate, and are not subject to further tax when entering the super fund.
- No Tax Benefit: Since these contributions are made from after-tax income, you do not receive a tax deduction for them.
- Caps: There are also annual caps on non-concessional contributions to limit the amount you can contribute each year.
Benefits of Voluntary Contributions:
- Increased Savings: Making voluntary contributions can significantly boost your super balance, leading to more funds available upon retirement.
- Tax Efficiency: Concessional contributions offer tax advantages, as they are taxed at a lower rate than the marginal tax rate for many individuals.
- Flexibility: Voluntary contributions provide flexibility for individuals to save for retirement at their own pace and according to their financial capacity and goals.
Always consider seeking advice from a financial advisor to understand how voluntary contributions can fit into your overall financial and retirement planning strategy, as individual circumstances can significantly influence the best course of action. The ATO provides even more detail on their website;
- About voluntary contributions
- 2022–23 financial year and later
- 2021–22 financial year and earlier
- Work test
Voluntary contributions you or others can make to your super fund include:
- salary sacrifice contributions
- personal contributions
- spouse contributions
- contributions by parents, other family or friends (not in the capacity of an employer)
- contributions by an insurer
- contributions by employers above their SG or award obligations
- government co-contributions
- downsizer contributions
- super capital gains tax cap election amounts
- personal injury election amounts
- first home super saver scheme contributions
Voluntary contributions don’t include any compulsory contributions by your employer made under:
- super guarantee
- an industrial agreement
- the trust deed or governing rules of a super fund
- a federal, state or territory law.
The trustee can accept compulsory employer contributions for members at any time. This means they can be accepted for a member regardless of the age of the member or the number of hours worked.
Changes to downsizer contributions
- Before 1 July 2022 – the age limit to make a downsizer contribution to your superannuation fund if you sold your family home was 65.
- From 1 July 2022 – from the age of 60, you may be able to make a downsizer contribution of $300,000 per person if you sell your family home.
A downsizer contribution in Australia refers to a superannuation contribution made by individuals aged 60 and over (previously it was 65 and over) who sell their home. This measure allows older Australians to make a one-off contribution to their superannuation of up to $300,000 from the proceeds of selling their home. It was designed to assist individuals in boosting their superannuation balance later in life and facilitate the freeing up of larger homes for younger families.
1. Eligibility Criteria:
Age: Individuals must be aged 60 or older.
Home Sale: The contribution is from the proceeds of selling your home, which you or your spouse have owned for ten or more years.
Exemption: The home sold must qualify for the partial or full main residence exemption from Capital Gains Tax (CGT).
Frequency: Individuals can only make downsizer contributions for one home. It’s not an ongoing opportunity, but a one-off.
2. Contribution Amount:
Limit: The maximum contribution is $300,000 per person. For couples, this means up to $600,000 combined can be contributed to super if both are eligible.
Proceeds: The contribution must come from the proceeds of the home sale.
3. Tax and Caps:
Concessional Cap: The downsizer contribution does not count towards your non-concessional contribution cap and is not subject to the $1.6 million total super balance restriction.
Tax-Free: The contribution itself is not taxed, and it can be an effective way to move money into the tax-advantaged superannuation environment.
Window: The contribution must be made within 90 days after the home changes ownership (usually the date of settlement).
Form: You must provide your superannuation fund with the downsizer contribution form before or when making the contribution.
Boost Retirement Savings: It provides an opportunity for individuals who may not have saved enough superannuation to boost their retirement savings.
Tax Advantages: Superannuation has tax advantages, and the downsizer contribution provides a way for older Australians to capitalize on this.
Housing Market: By encouraging older Australians to downsize, it can potentially free up larger homes for younger, growing families.
Always consider seeking advice from a financial planner or advisor to evaluate if making a downsizer contribution aligns with your overall financial and retirement planning strategy, as it involves consideration of various factors, including tax implications, social security, and estate planning.
First Home Super Saver Scheme
- Before 1 July 2022 – the maximum amount fund members were able to withdraw from previously voluntary super contributions under the first home super saver scheme was $30,000.
- After 1 July 2022 – Eligible super fund members may be able to withdraw up to $50,000 in eligible super contributions to help buy their first home.
The first home super saver (FHSS) scheme allows you to save money for your first home in your super fund. The scheme allows you to make voluntary contributions (both before-tax concessional and after-tax non-concessional) into your super fund to save for your first home. If you meet the eligibility requirements, you can have these voluntary contributions released, up to a limit, (along with associated earnings) to help you purchase your first home.
You can apply to have a maximum of $15,000 of your voluntary contributions from any one financial year included in your eligible contributions to be released under the FHSS scheme, up to a total of $50,000 contributions across all years. (If you requested a release before 1 July 2022, when the total limit across all years was $30,000, you cannot make any further requests to take you up to the current $50,000 limit.)
You will also receive associated earnings, which is a deemed amount of earnings calculated based on the shortfall interest charge (SIC) rate – this is not the actual earnings on those contributions in your fund. Contributions released under the FHSS scheme can be used to buy a new or existing home in Australia.
What happens if you don't have superannuation when you retire?
In Australia, if you don’t have any superannuation when you retire, there are still safety nets in place to provide some level of financial support. Here’s what generally happens:
1. Age Pension:
The Australian government provides the Age Pension to eligible individuals who have reached the qualifying age and meet the income and assets tests. It is a means-tested payment designed to provide income support to older Australians who need it. The Age Pension can be a crucial source of income for those without superannuation savings.
2. Other Support:
Apart from the Age Pension, there are other types of financial assistance and support services available for senior Australians. These can include health care benefits, concessions, and other subsidies to assist with living costs.
3. Personal Savings and Assets:
Without superannuation, retirees would need to rely more heavily on personal savings and other assets to fund their retirement. It makes having a personal savings plan and investments outside of super essential.
4. Continuing to Work:
Some people may choose or need to continue working past the traditional retirement age to support themselves financially. It can provide additional income, reduce the need to draw on savings, and allow savings and investments more time to grow.
5. Family Support:
In some cases, family members may assist in supporting those without sufficient superannuation or personal savings, though this depends on individual family circumstances.
6. Downsizing or Liquidating Assets:
Selling assets or downsizing the home can free up capital to fund retirement living expenses. It’s also linked with the downsizer contribution to superannuation for eligible Australians, allowing a one-off contribution to be made to super from the sale proceeds of the family home.
Planning for Retirement:
It’s vital to plan for retirement to ensure a comfortable and financially secure life in your later years. If you’re concerned about not having enough superannuation:
Review and consolidate: Regularly review your superannuation and consider consolidating multiple accounts to reduce fees.
Voluntary contributions: Consider making additional voluntary contributions to your super to boost your retirement savings.
Financial advice: Seek advice from a financial advisor to plan effectively for your retirement, considering all income sources, investments, and strategies to optimize your financial wellbeing in retirement.
While superannuation is a significant component of retirement planning in Australia, there are other means of support and strategies to ensure financial security in retirement for those who may not have adequate super savings. Always consider seeking professional advice tailored to your personal financial situation and goals.
If you are an employer, it is important to ensure you have updated your payroll and accounting systems so that you continue to pay the right amount of super for your employees and avoid penalties. If you’re ever unsure on this, working with a trusted accountant like our experienced team based in our office in the South West of Sydney in Gregory Hills can help put you on the right track.
Fitzpatrick & Robinson are recognised industry leaders and experts in Xero and cloud accounting, and can ensure you’re set up for success. Staying abreast of super changes as an employer and an employee will always remain paramount. If you’d like to keep up to date with all the latest news and updates from us, you might like to sign up to our mailing list via our form at the bottom of this page.
For now, if you’d like more information on any superannuation changes, please contact us for assistance.