Super rules have changed: Here’s what it means
If you’re approaching retirement, new rules mean you can now put extra money into super and potentially reap some tax benefits as well.
Until recently, people in their late 60s and early 70s could only make voluntary contributions to super if they proved to the Australian Taxation Office they were working for part of the year. Under the ‘work test’, people aged between 67 and 74 had to show they were earning income through work for at least 40 hours over a 30-day period.
However, the work test has now been repealed, which means savers approaching retirement can make before and after-tax contributions even if they’re no longer working.
For many people on the cusp of retirement, this rule change creates the opportunity to add more to their nest egg, with the lifetime balance cap now sitting at $1.7 million. In other words, people can put up to $1.7 million into a tax-free retirement account over the course of their life.
Who it may affect
Given there are millions of Australians in their 60s and 70s, this change is likely to create new options for a large number of people. Specifically:
People aged between 67 and 74 who are no longer working, but would like to add to super;
People aged between 67 and 74 who have savings in other accounts or investment vehicles, but would like to put that money into super instead.
Savings accounts and term deposits vs. super
The earlier work test rules meant that some savers who weren’t allowed to put extra money into super (without tax consequences) instead had their money in term deposits, savings accounts or regular bank accounts.
At the end of the financial year, any interest earned on savings in bank accounts or term deposits attracts tax. The amount of tax payable depends on the amount earned across the financial year (some savers still find they are below the tax-free threshold with their investment income, but it depends on how much is in savings).
A major benefit of super is the potential to save on tax. When money is put into super and turned into a self-allocated pension, there’s no tax on income in the super fund, on capital gains on the investments or on the pension that’s drawn down.
In other words, people who put money into a super pension account don’t have to pay tax on earnings and withdrawals from their account.
General advice warning:
The information provided on this webpage is intended to provide general information only and the information has been prepared without taking into account any particular person’s objectives, financial situation or needs. Before acting on such information, you should consider the appropriateness of the information having regard to your personal objectives, financial situation or needs.
