Changes Coming To Superannuation

Earlier this month, both the Treasury Laws Amendment (Self-Managed Superannuation Funds) Bill 2020 and the Treasury Laws Amendment (More Flexible Superannuation) Bill 2020 passed through the House of Representatives and the Senate.

What changed and what does this mean for you?

Bring Forward Rule Extension

The bring-forward rule extension will enable individuals aged 65 and 66 to make up to three years of Non-Concessional (After-Tax) Superannuation Contributions under the bring-forward rule.

Previously, this was restricted to individuals under age 65, who at any time in a financial year could effectively bring forward up to two years’ worth of non-concessional contributions for that income year, allowing them to contribute a greater amount up to $300,000 without exceeding their non-concessional cap.

In short, instead of needing to be under age 65 at any point in the financial year to utilise the ‘bring forward rule’, you can now be under age 67 at any point in the financial year.

This change coincides with the changes in the work test and spouse contributions.

Six Member SMSFs (From 1st July 2021)

For those of you with a Self-Managed Superannuation Fund, this change increases the maximum number of members permitted in your SMSF from four to six.

Increasing the allowable size of these funds will increase the choice and flexibility for members. SMSFs are often used by families as a vehicle for controlling their own superannuation savings and investment strategies.

For larger families (more than four), currently the only real options are to create two SMSFs (which would incur extra costs) or place their superannuation in a large industry or retail fund. This change will help large families to include all their family members in their SMSF.

This change will provide greater investment flexibility, choice and lower fees for those in a position to use it.

Removal of Excess Concessional Contributions Charge
(From 1st July 2021)

This amendment removes the application of an excess concessional contribution charge that applies to any additional tax liabilities that arise due to a member exceeding their concessional contributions in a year.

Prior to the change, if you exceed your concessional contributions cap, you also may have to pay the excess concessional contribution charge (ECC charge).

This charge is in addition to the extra tax you pay when your excess contributions are included in your assessable income.

Your Future, Your Super (From 1st November 2021)

Super Fund Stapling

Aimed at reducing the creation of duplicate accounts when workers change jobs, as this can result in members paying fees to multiple funds.

The change will see workers ‘stapled’ to the first super fund they join unless they explicitly choose to join another.

PROS: Avoids multiple accounts with multiple fees – this is a massive issue, particularly for those who change jobs often – this overall will lead to higher super balances come retirement which is the entire point of superannuation

DANGERS: Unless people are engaged with their super, this could create an underinsurance issue as well as people being potentially ‘stapled’ to a poor fund. With many people underinsured already, this creates a massive problem.

New Performance Testing

APRA will measure super funds against an industry benchmark for financial returns to members. Funds that fail to meet these benchmarks for two consecutive years will be banned from taking on new members in a move that is expected to protect Australians from handing over money to poor funds.

PROS: Makes super funds more accountable for their performance. Also helps people understand if there super is performing or no

DANGERS: Investing is a long-term game. Super funds may be encouraged to make higher risk investments in the hope of beating the benchmark and making investments based on short term influences rather than long term.

Best Financial Interests Duty

The changes will also introduce a new Best Financial Interests Duty to ensure all super fund expenditure is in the interests of members.

PROS: Less of your money being spent on advertising etc.

DANGERS: May lead to higher costs as funds would have to carry out additional compliance without any corresponding benefit.

Re-contribution of COVID 19 Early Release Amounts
(From 1st July 2021)

This change will allow a member that released amounts from superannuation under the COVID 19 early release rules to recontribute those amounts without counting towards the non-concessional cap. These contributions cannot be claimed as a tax deduction. This contribution needs to be made between 1 July 2021 to 30 June 2030.