The biggest super reforms were recently introduced by the Australian government.
Josh Fydenberg stated that the reforms “will drive lower fees, improve fund performance and prevent the creation of millions of unintended accounts,” he said. The government estimates that together the reforms will save Australians $17.9bn over 10 years.
The key changes to super that came into effect on July 1st, were an increase in your super guaranteed, changes self-managed super funds membership, changes to contribution caps and the introduction of stapling your super.
We have broken down the super reforms and how they will affect you and your growing nest egg.
Underperforming super funds to be shamed
For over 3 decades, Australians have been left powerless to make informed judgements on whether the people trusted to manage their retirement nest eggs are doing a good job or not.
The biggest shake-up introduced by the government is naming and shaming underperforming superannuation funds, in the hopethat it will encourage Australians to move their nest eggs to better performing funds.
The government introduced the online comparison tool YourSuper on the 1st July, which allows you to rank and compare your current super fund to other funds, comparing the fees and performance.
On the YourSuper tool, you will find a list around 80 super funds and the performance of their MySuper investment options. Its important to note that not everyone has invested their super savings into their MySuper options, this is the default option for members who do not make a specific choice where they want their money managed.
For many of us, who have made an active choice to invest in a non-MySuper option, such as “growth” or “high growth”, the information displayed by the comparison tool is of less immediate value. A fund may perform badly on its MySuper offering but better on other options. It’s still worth checking how your fund’s MySuper returns compare.
If you find that your super is underperforming or your fees are higher than other super funds, before you go switching from your current fund to one of the top performing listed on the comparison tool, ensure to check your insurance cover you may lose.
Before making any changes ensure to speak to a professional financial advisor who can way up your options and ensure the change best suits your individual goals.
Super guarantee increases
On July 1st, super guaranteed was increased from 9.5% to 10%. You will now see your super balances grow a little faster from month to month because of the change.
For many of us, this will mean a welcome increase to overall remuneration with your take-home pay staying as is, and your employer tipping more into your superannuation, helping you in retirement.
The average Australian will take home an extra $6.50 into their super each week, making Australians about $19,000 better off in retirement, according to ASFA.
This is the first change in super increases series, your super will continue to increase by 0.5% every year until it reaches 12% super guaranteed in 2025.
Many ask why the slow approach to 12% super guaranteed?
The reasoning behind the gradual approach is to give businesses time to plan, as they only need to make small increases each year rather than cope with a 2.5% increase all at once.
If your salary is paid inclusive of super, will see your take home pay fall from 1st July. This is because it is legal for employers to offset an increase in the super guarantee by reducing an employee’s take-home pay, provided that their remuneration package is inclusive of superannuation.
Six member SMSF’s
On July 1st, the maximum number in an SMSF was increased from four to six members, which paves the way for larger families to reap the benefits from their combining super balances.
The main advantages of the proposed increase to six members are:
- Larger families are catered for.
- There is most likely a reduction in operating costs compared to a family that would require two or more funds to achieve the same outcome.
- More efficient fund administration as a corporate trustee is required for a fund with more than four members to meet the state trustee legislation.
- Greater ability for the SMSF to qualify as an Australian superannuation fund when one or more members travel overseas for a prolonged period, saving in administration costs.
Disadvantages of a six-member fund may include:
- Ensuring the fund’s trust deed can cater for the increase in member numbers.
- Difficulty in the administration of an SMSF due to the number of members involved.
- Reduced efficiencies in decision-making.
- Overall control and management of the fund; for example, the decision of the trustees/members to appoint or remove trustees.
If you interested in learning more about change, go to ATO SMSF membership increase.
We offer SMSF administration services, Including setting up your Self-Managed Super Fund (SMSF), financial document preparation, tax returns and annual auditing. In other words, you can leave the hard work to us. Contact us today!
Increased Contributions caps
The amount of money you can contribute into your super each is year has increased.
It is now tax-effective for Australians to put even more money into their super, after the pre-tax contributions cap was increase from $25,000 to $27,500 on 1st July.
Also, there was additional increase in the after-tax contribution cap (also known as non-concessional cap) from $100,000 to $110,000.
The high earners are the main beneficiaries of the these increases and Australian who are close to retirement, as they are more likely to breach the limits.
Concessional contributions include:
- Compulsory contributions – these are the before-tax contributions your employer is required to make into your super fund under the Superannuation Guarantee scheme, if you’re eligible.
- Salary sacrifice contributions – these are additional contributions you can get your employer to make into your super fund out of your before-tax income if you choose to.
- Tax-deductible contributions – these are voluntary contributions you can make using after-tax dollars (such as when you transfer funds from your bank account into your super), which you then claim a tax deduction for. These can be made by both self-employed people and employees.
- Personal after-tax contributions – these are contributions you put into your super fund using after-tax dollars, which you don’t claim a tax deduction for. Some reasons why you might choose to make non-concessional contributions, include if you’ve reached your concessional contributions cap, if you’ve received an inheritance, or if you’re after a government co-contribution into your super fund.
If you want to learn more about contributions to your super, we recommend reading ATO types of concessional contributions.
Bring Forward Rule
Good news for those aged 65 and 66 can now make up to three years of non-concessional superannuation contributions as of July 1, putting them on an equal footing with younger savers.
The “bring forward rule” allows an individual to make three years of non-concessional contributions at once. So instead of putting $110,000 in this year, the next year and the year after, you can put $330,000 in now.
Duplicated super accounts will be a thing of the past
From November 1st, ‘Stapling’ will be introduced. The objective of stapling policy is to reduce the number of people who have duplicated super accounts. Duplicated accounts ultimately hurt your super balance, as fees eat away at your retirement savings.
So, when an employee starts a new job but does not nominate a super fund to receive contributions, their employer is required to make contributions to their existing super fund, if they have one. So, in a sense you are stapled to your existing fund.
However, this doesn’t mean you are stapled to one super fund, you can opt to leave an existing fund in favour of a new one.
Proposed 2022 changes to super
Removal of $450 monthly income threshold for super contributions – The Government will remove the $450 minimum monthly income threshold, meaning all workers, regardless of how much they earn, will be entitled to receive employer super payments.
Increase in the withdrawal limit for First Home Super Saver Scheme (FHSSS) – increase from $30,000 to $50,000.
Removal of super contribution ‘work test’ for those aged between 67 and 74
Lower age threshold for super downsizer scheme – The eligibility for downsizer contributions will be lowered from age 65 to 60, allowing retirees to contribute up to $300,000 to their super following the sale of their home. Couples may be eligible to contribute up to $300,000 each.
Legacy product conversions – The Government will allow individuals to exit specified legacy retirement products to transition to more flexible and contemporary retirement products.
There have been a lot of super reforms recently and furthermore will come into effect next year.
So, when it comes to your super, we advocate staying ahead of the game, to ensure you understand the changes and continue to grow your nest egg to grow nicely.
Get in touch with us today for complimentary consultation to discuss your retirement plan and we can provide you advice tailored to your unique situation.