Need to know
- An outdated threshold which meant low-income earners were missing out on super has been abolished
- Dividing super in divorce proceedings will be fairer
- Some changes to the Pension Loans Scheme and downsizer contributions announced
The 2021 federal budget didn't reinvent the wheel when it came to super, but it did introduce some refinements which can help you save for your retirement years.
"The budget's a step towards fairer super," says Xavier O'Halloran, director of Super Consumers Australia.
"We welcome the progress made. Financial comfort in retirement is key to people's wellbeing. Nobody should be left behind, and consumers need a seat at the table for policy discussions."
"There's more to be done, but we saw the government starting to draw on the fact base from the Retirement Income Review to make super more fair and flexible for all Australians."
The changes are all scheduled to take effect from 1 July 2022, depending on the government being able to pass the relevant legislation.
1. More Australians will get super
Previously, Australians earning less than $450/month from a single employer weren't entitled to earn super on this money.
The Retirement Income Review found that dumping this rule would improve retirement outcomes for women, low-income earners and those doing part-time work.
About 300,000 Australians have been missing out on super because of this rule. From 1 July 2022 this rule will be abolished.
O'Halloran believes the rule was outdated and removing it will make Australia's retirement system fairer.
"Scrapping this rule will see about 200,000 women and 100,000 men on low incomes earn a combined $90 million in extra super a year," he says. "It's an important change that will make the superannuation system fairer."
2. Easier for those aged 65–74 to contribute to their super
Australians aged 65–74 previously had to meet a 'work test' (or satisfy an exemption to this test) to be eligible to make a voluntary contribution to their super.
The budget will remove this test, meaning senior Australians will have more flexibility to contribute to their super at this age.
The change will apply to both non-concessional contributions (i.e. moving money from your savings into super) and salary sacrifice contributions.
This change will enable more individuals to make tax-effective contributions which will help them build up adequate retirement savings.
In CHOICE's retirement survey, many Australians told us they wanted the retirement system to be simpler – this is a step towards a more straightforward, flexible system.
3. First Home Super Saver Scheme extended
From 1 July 2022, first-time homebuyers will be able to use up to $50,000 per person through the First Home Super Saver Scheme (FHSSS).
The scheme aims to make it easier for first home buyers to build up funds for a deposit.
Not for buying a house
Contrary to some media reports, this initiative doesn't allow you to use the super your employer has been paying into your retirement savings to buy a house.
You can only use voluntary contributions that you've made to your super since 1 July 2017. In this way, it's more like using your super account as a savings account with the potential for better returns and tax savings.
The Retirement Income Review found that less than 9000 people had used the FHSSS since it started in 2018. It also said it was "unclear" how effective the scheme had been.
There's a lot to weigh up if you're thinking of using the FHSSS to buy a house – we take a closer look at this in a later story.
4. You can now make a downsizer contribution from age 60
The downsizer contribution is another little-known super rule. It aims to make it more attractive for Australians to 'downsize' by selling their property (you don't actually have to move to a smaller home) and putting up to $300,000 per person from the proceeds into your super.
In the right circumstances, doing this could save you on tax.
Once the change comes in, you'll be able to make one of these contributions from age 60 – it had previously only been open to those aged 65 and over.
5. No more hiding super assets in divorce proceedings
The government also announced it would improve the transparency of super assets for those going through a divorce. This change was first announced in 2018, and women's advocacy groups have supported the move.
Currently, it's a difficult and expensive process for people in divorce proceedings to see what super their ex-partner has and get their fair share.
Many women escaping family violence are living with limited assets… For them, superannuation is often the only part of the property poolTania Clarke, Women's Legal Service Victoria
Tania Clarke, manager of policy and campaigns, Women's Legal Service Victoria, says the proposed change would particularly help women fleeing abusive relationships.
"Many women escaping family violence are living with limited assets and serious debt," Clarke says. "For them, superannuation is often the only part of the property pool.
"Making access to superannuation information easily available will mean a lesser burden on family violence survivors and less court time wasted trying to enforce disclosure requirements. It's a win for everyone in the family law system."
6. You can go overseas and still contribute to your SMSF
The government will also relax the rules about contributing to a self-managed super fund (SMSF) or a small APRA-regulated fund.
This means you'll be able to keep contributing to one of these funds for up to five years (it's currently two years) if you're working or studying overseas and want to keep your retirement savings in one place.
7. It'll be easier to leave an outdated SMSF retirement product
'Legacy' retirement products have been identified as an inefficient part of Australia's retirement system. New customers can't get into these products, but some Australians are still stuck in them and getting subpar retirement outcomes.
Some of these products restrict their members from drawing down on their retirement savings. Having your money tied up after your working life is at odds with what the retirement system was designed for.
People in these products will have two years where they can choose to move back into super fund accounts without penalty. From there, they can leave the money in the 'accumulation phase' of super or move it into a tax-free retirement income stream.
8. More flexibility and peace of mind through the Pension Loans Scheme
The Pension Loans Scheme (PLS) is a government initiative that operates similarly to a reverse mortgage.
It allows Australians of Age Pension age to give equity in their home to the government in return for income in retirement.
Currently, you can only get regular income payments through the PLS, but a change announced in the budget introduces greater flexibility – you'll be able to take up to two lump-sum payments in a 12-month period.
The government will also introduce a no negative equity guarantee for this scheme. This means that if you borrow under the PLS, you'll never owe more than the market value of your property.
This is also important if you want to pass the property down to your children and ensure they can't be saddled with a debt that is more than the value of the property.
9. Super Guarantee will move to 10% on 1 July 2021
There has been ongoing speculation over whether the super guarantee (the percentage of your salary your employer pays into super) would continue to rise or whether the government would keep the guarantee at its current level.
The budget made no change on this front, meaning the guarantee will rise from its current 9.5% to 10% at the end of this financial year. It is also scheduled to rise another 0.5% in each of the next four years, reaching 12% on 1 July 2025.
"The superannuation guarantee going ahead means it is more important than ever that super funds are doing their best to grow our savings and help us to plan for retirement," says O'Halloran.
"At the moment the whole system is geared towards growing our savings, but does a poor job at helping us to make the most of them in retirement."
10. Easier for Kiwis to get their unclaimed super
The government will also fund the Australian Taxation Office to help New Zealanders get unclaimed super paid into their equivalent of super funds, Kiwisaver.
11. Continued funding for a super consumer advocate
Last, but (hopefully) not least, the budget included an additional two years of funding for Super Consumers Australia. The funding will ensure that the people the super system was developed for – consumers – will have a say in debates about super.
Super Consumers Australia's ongoing work will include a new set of retirement standards to help you work out how much you'll need to retire on, campaigning to end 'junk' insurance in super, and ensuring funds that aren't managing your nest egg efficiently either improve or leave the system.
Using credible, independent research, investigative journalism and policy expertise, we have helped to deliver a series of important consumer reforms to the superannuation systemXavier O'Halloran, director of Super Consumers Australia
Director Xavier O'Halloran welcomed the continued funding but argues that long-term funding is needed.
"Using credible, independent research, investigative journalism and policy expertise, we have helped to deliver a series of important consumer reforms to the superannuation system," he says.
"This has included measures to remove the scourge of duplicate accounts, to ensure insurance in super is appropriate to members' needs and, most recently, to support the refinement of legislation to lift the performance of super funds.
"We'll keep working hard to advocate for consumers, but without further funding and long-term certainty, industry lobbyists will continue to have the loudest voices in critical debates about superannuation."
This content was produced by Super Consumers Australia which is an independent, nonprofit consumer organisation partnering with CHOICE to advance and protect the interests of people in the Australian superannuation system.
Stock images: Getty, unless otherwise stated.