In the May 2018 Federal Budget, the Government announced plans to extend the ability for recent retires to make contributions to superannuation from 1 July 2019. This change has now been legislated.
In a nutshell, the rules in the current year only allow superannuation contributions for someone over 65 if:
- the contributions are legally compulsory (eg required by an award or the Superannuation Guarantee rules), or
- the member has met a “work test”. (The work test is, broadly speaking, completing 40 hours of paid work over no more than 30 consecutive days at any time in the financial year and before the contribution is made).
What’s the change?
From 1 July 2019 individuals will have one extra financial year in which contributions can be made after the year in which they last meet the work test.
The one condition they must meet is that their Total Superannuation Balance (ie the measure of all of the money they have in superannuation across all their funds) must be less than $300,000 at the relevant time.
More specifically, the process will be:
- identify the last year in which the individual met the work test (let’s say an individual retired, having recently turned 67, in May 2020), and
- confirm that their Total Superannuation Balance was under $300,000 at the end of that year (30 June 2020 in this case), and if so
- member and employer contributions will be allowed in the 2020/21 year even though the individual will be turning 68 and will not have worked at all during that year.
The exemption applies for the first time in 2019/20. Note that this is the first year in which contributions will be possible under the new rules – those using it in that first year would need to meet the work test in 2018/19.
What is and isn’t allowed?
Those who cease work entirely well before age 65 will effectively receive no benefit from this change. It is not a blanket exemption for one year after the last year in which contributions were possible.
It doesn’t allow contributions at times when they are not allowed regardless of whether the person has met the work test – eg voluntary contributions are illegal after 75 (or more technically, the 28th day of the month following their 75th birthday) and this remains the case.
The exemption is also only available in one financial year. This means that it isn’t possible for someone to use the exemption in one year, then meet the work test in the next and use the exemption again the year after.
How does the exemption interact with the bring forward rules?
The “bring forward rules” are the special rules that allow people to contribute up to two or three years’ personal contributions in a single year (effectively “bringing forward” one or more subsequent years’ contribution limits).
Currently, the year in which an individual turns 65 is the last year in which they can initiate a bring forward period and this will not change as part of the exemption.
The feature that limits the value of this opportunity is the $300,000 cap on members’ Total Superannuation Balances. However, it does present some new opportunities for those with small balances.
Article amended 10 December 2018 to reflect release of amending legislation