Federal Budget 2021: What’s changing on 1 July 2022

Federal Budget 2021
What’s changing on 1 July 2022, and what it means for your retirement
July 27, 2021

A number of measures around superannuation and retirement were announced in the May 2021 Federal Budget with the majority taking effect from 1 July 2022.

Although most of these adjustments are to existing measures, it’s still worth checking how, or if, they might impact you when they come into effect. For this article, we’ve focussed mainly on the areas that may impact retirees, or those close to retirement. Please note that these proposals are subject to change prior to being passed as legislation and/or regulation and you should consider consulting a financial planner and/or tax specialist before acting upon any of the proposed Federal Budget measures.

If you’re retired…
Downsizer lower age threshold reduced to age 60  

Proposed start date: 1 July 2022

In a slated 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 age 651. 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 $1.7 million.

The measure is exempt from the work test, but is not exempt from the $1.7 million transfer balance cap (which limits the amount of money you can put into a pension phase account where the earnings are tax free). Note your personal transfer balance cap may be lower than $1.7 million if you commenced a tax-free retirement pension before 1 July 2021.

If you’re interested in finding out more about downsizing, you can find a fact sheet and article here or visit ato.gov.au for more info.

Click here for details of changes to the eligibility criteria for non-concessional contributions outside of downsizer contributions.

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

Proposed start date: 1 July 2022

A planned 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% 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.

Pension Loan Scheme

Proposed start date: 1 July 2022

The flexibility of the Pension Loans Scheme is being improved by the proposition of the provision of access to advance payments. Participants will be able to access up to 26 fortnights’ worth of top-up payments as a lump sum. This measure will provide immediate access to lump sums of around $12,385 for singles, and $18,670 for couples.

A No Negative Equity Guarantee will also be introduced which means 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.

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

Proposed start date: 1 July 2022

The budget also proposes abolishing 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 $1.7 million cap on lifetime superannuation contributions (total super balance) will continue to apply. The annual concessional and non-concessional caps will also continue to apply.

$450 monthly income threshold for mandatory employer contributions removed

Proposed start date: 1 July 2022

The current $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 budget measures intend to remove this threshold and will ensure this group of workers are paid super.

If you’re still working, even if for limited hours, this could mean more retirement savings.

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

1 ato.gov.au/General/New-legislation/In-detail/Super/Flexible-super---reducing-the-eligibility-age-for-downsizer-contributions/