Our offices are closed due to Covid-19 stay at home orders, but our team is still available to help over the phone.
If you have a meeting, please call us on 1300 369 301 to make alternative arrangements.

Federal Budget 2021: What it means for your super and retirement

Federal Budget 2021
What it means for your super and retirement

The focus of this year’s Federal Budget is on initiatives designed to maintain and grow Australia’s post-pandemic economic recovery, which has been better than expected.

While a number of superannuation and retirement measures were announced, most of these are either changes or adjustments to existing measures.

The government will remove the $450 minimum monthly income threshold, which prevents many low paid women, in particular, from receiving compulsory super contributions.

In a change to an existing measure, the maximum withdrawal threshold for the existing First Home Super Saver Scheme will be increased to $50,000, from $30,000. This scheme does not allow first home buyers to withdraw any of their compulsory super savings, only voluntary savings qualify for release.

In another change to an existing measure, retirees who downsize their family home will be able to contribute $300,000 to superannuation ($600,000 for couples) at age 60, down from 65.

Snapshot of changes
Super
  • $450 monthly income threshold for mandatory employer contributions removed
  • First Home Super Saver Scheme withdrawal limit increased to $50,000
  • Super contribution ‘work test’ removed for those aged between 67 and 74
  • Transfer of unclaimed super to KiwiSaver accounts
Retirees
  • Downsizer lower age threshold reduced to age 60
  • Legacy product conversion of market-linked, life-expectancy and lifetime pension and annuity products
  • More flexible Pension Loan Scheme and a No Negative Equity Guarantee

The budget will also abolish the work test, which requires those aged between 67 and 74 to be gainfully employed for at least 40 hours over 30 consecutive days during the financial year before concessional or non-concessional superannuation contributions can be made.

It’s important to remember that the budget measures outlined need to be legislated before they come into effect. The same applies to the package of super measures announced in last year’s mid-pandemic October budget which remain in Parliament and are still subject to debate.  

Further information on some of these measures can be found in the Treasury budget fact sheets.

For super members
$450 monthly income threshold for mandatory employer contributions removed

The $450 monthly income threshold prevents an estimated 300,000 low paid workers, 63% of whom are female, from receiving mandatory employer super contributions (superannuation guarantee contributions). The removal of this threshold will ensure this group of workers are paid super.

Proposed start date: 1 July 2022  

First Home Super Saver Scheme withdrawal limit increased to $50,000

The Government proposes to increase the maximum amount of voluntary contributions aspiring home buyers can take from the First Home Super Saver Scheme to $50,000.

This scheme allows people to make voluntary contributions to superannuation to save for their first home. At present these contributions are capped at $15,000 a year and $30,000 in total.

Under the proposed changes, contributions into a super fund will be allowed by salary sacrifice up to a maximum of $50,000 in total. Where there is a couple involved, both individuals will be able to utilise their caps up to a maximum of $100,000.

This scheme relates to voluntary contributions only. First home buyers cannot withdraw any part of their compulsory super savings – that is, super contributions made on their behalf by their employer - under the scheme.

Proposed start date: 1 July 2022   

Super contribution work test removed for those aged between 67 and 74

The budget will also abolish the work test, which requires those aged between 67 and 74 to be gainfully employed for at least 40 hours over 30 consecutive days during the financial year before concessional or non-concessional superannuation contributions can be made.

This will allow individuals aged 67 to 74 years (inclusive) to make or receive non-concessional (including under the bring-forward rule) or salary sacrifice superannuation contributions without meeting the work test, subject to existing contribution caps. Individuals aged 67 to 74 years will still have to meet the work test to make personal deductible contributions.

The existing $1.6 million cap on lifetime superannuation contributions will continue to apply (increasing to $1.7 million from 1 July 2021). The annual concessional and non-concessional caps will also continue to apply.

Proposed start date: 1 July 2022

Transfer of unclaimed super to KiwiSaver accounts

The Government will provide $11.0 million over four years from 2021-22 (and $1.0 million per year ongoing) to the Australian Taxation Office to administer the transfer of unclaimed superannuation money directly to KiwiSaver accounts (the New Zealand equivalent of Australian superannuation funds).

Proposed start date: 1 July 2021

For retirees
Downsizer lower age threshold reduced to age 60  

In another change to an existing measure, retirees who downsize their family home will be able to contribute $300,000 to superannuation ($600,000 for couples) at age 60, down from 65. This contribution is classified as a non-concessional (post-tax) contribution and is allowed in addition to existing super rules and caps including the total super balance cap of $1.6 million (to rise to $1.7 million on 1 July 2021). The measure is exempt from the work test, but is not exempt from the $1.6 million (also rising to $1.7 million on 1 July 2021) transfer balance cap (which limits the amount of money you can put into a pension phase account where the earnings are tax free).

Proposed start date: 1 July 2022

Legacy product conversion of market-linked, life-expectancy and lifetime pension and annuity products

A two-year period will be provided for conversion of market-linked, life-expectancy and lifetime pension and annuity products. Importantly, it will not be compulsory for individuals to take part.

Retirees with these products who choose to will be able completely exit these products by fully commuting the product and transferring the underlying capital, including any reserves, back into a superannuation fund account in the accumulation phase. From there they can decide to commence a new retirement product, take a lump sum benefit, or retain the funds in that account.

Any commuted reserves will not be counted towards an individual’s concessional contribution cap and will not trigger excess contributions. Instead, they will be taxed as an assessable contribution of the fund (with a 15 per cent tax rate), recognising the prior concessional tax treatment received when the reserve was accumulated and held to pay a pension.

Products covered: Market-linked, life-expectancy and lifetime products which were first commenced prior to 20 September 2007 from any provider, including self-managed superannuation funds (SMSFs).

Products not covered: Flexi-pension products offered by any provider, and lifetime products offered by a large APRA-regulated defined benefit scheme or public sector defined benefit scheme, will not be included. EISS Super’s Defined Benefit and Retirement Scheme Lifetime Pensions are classified as APRA-regulated defined benefit schemes and are therefore excluded from this measure.

Proposed start date: 1 July 2022

Pension Loan Scheme

The flexibility of the Pension Loans Scheme is being improved by providing access to advance payments. Participants will be able to access up to 26 fortnights’ worth of top-up payments as a lump sum. A No Negative Equity Guarantee will also be introduced. This measure will provide immediate access to lump sums of around $12,385 for singles, and $18,670 for couples.

The No Negative Equity Guarantee will mean borrowers under the Pension Loan Scheme, or their estate, will not owe more than the market value of their property, in the rare circumstances that their accrued Pension Loan Scheme debt exceeds their property value. This brings the Pension Loan Scheme in line with private sector reverse mortgages.

Proposed start date: 1 July 2022

New thresholds on 1 July 2021 for some existing measures

While not part of the 2021 Federal Budget announcements, it is worth noting that the thresholds for a number of existing super measures will increase from 1 July 2021. This includes increases to the amount you can voluntarily contribute to super through either salary sacrifice or by making a non-concessional contribution.

The key super rates and thresholds will increase as below for the 2021/22 financial year:

  • The concessional contributions cap will be $27,500, up from $25,000.
  • The non-concessional contributions cap will be $110,000, up from $100,000.
  • The general transfer balance cap will be $1.7 million, up from $1.6 million. Please note, the amount of increase will depend on whether you have previously commenced a tax-free retirement pension.