Contributing beyond age 65 – proposed law released in draft form

A cohort of Australians will be pleased to hear that we are a step closer to knowing if the Government’s Election promise will come to fruition by its proposed start date of 1 July 2020.

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Last year the Government’s Federal Budget and Election campaign included a measure to allow older Australians more flexibility to contribute to superannuation after age 65. Specifically, the proposals were to:

• allow 65 and 66-year olds to make or receive super contributions without meeting the 40 hours in a 30 day period work test, and
• allow those turning 66 and 67 to trigger the non-concessional contribution “bring forward” arrangements, and
• allow those age 70 to 74 to receive spouse contributions.

The legislation released in draft form yesterday (with an invitation from Government for consultation) amends the SIS Regulations and the Income Tax Assessment Act 1997 to do precisely this. If passed, it will apply to contributions made in the 2020-21 financial years and later.

We have been looking out for this draft legislation as, although it commences from 1 July 2020, the passage of it affects contribution planning and strategies this financial year.
 
For example, an individual turning 65 in 2019/20 might be planning to trigger and fully utilise a 3 year bring forward by making a non-concessional contribution (NCC) of $300,000 prior to 30 June 2020 (and before their 65^th birthday if they don’t meet the work test).

If the law changes in line with this draft, however, and they are allowed to trigger a bring forward in the year they reach age 66 or age 67, they might reconsider this plan and instead contribute:

• $100,000 NCC in 2019/20 (ie do not trigger the bring forward),
• $100,000 NCC in 2020/21 (ie do not trigger the bring forward), and
• $300,000 NCC in 2021/22 – ie the year of their 67^th birthday but before their birthday.

Doing so would enable the individual to get an extra $200,000 NCC into super, all without meeting a work test.

Those who reach age 65 next year (ie in 2020/21) have been facing a similar dilemma. Under the current rules, they may be planning the following contributions:  

• $100,000 NCC in 2019/20 (ie do not trigger the bring forward), and
• $300,000 NCC in 2020/21 – ie the year of their 65^th birthday but before their birthday.

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If the law changes, however, and they are allowed to trigger a bring forward in the year they reach age 66 or age 67, they might reconsider this plan and instead contribute:

• $300,000 NCC prior to 1 July 2020 (ie trigger the bring forward this year), then
• Once their 3 year bring forward period has refreshed (on 1 July 2022), trigger a new bring forward by contributing a further $300,000 NCC (or more if the CC cap is indexed) in the year of their 67^th birthday (but before their birthday).

Note that if the change is introduced as outlined in this draft:

• There will be no change to downsizer contributions – these will still commence from age 65’
• Work test exempt contributions will operate exactly as they do at the moment except that it will not be necessary to rely on them until after a member turns 67’
• There is no proposal to change the preservation rules. This means 65 remains the age at which anyone (working or not) can access their superannuation with no constraints. In fact the new rules would introduce a two year period where any member can access their superannuation in full (including via lump sums or retirement phase pensions) at the same time as having maximum contribution flexibility. Currently this is only possible for those who retire before 65.

The consultation period for the changes closes 3 April 2020, in time for the Bill’s introduction in the May or June sitting of the House of Representatives and Senate.

Watch this space.