What’s Changing in Your Super After The 1st of July?

June,28,2021

A handful of changes to superannuation are coming our way this year, and they’re very exciting. These changes are due as of 1 July 2021 and apply to both institutional funds as well as SMSFs. The changes are part of an ongoing reform process with much more due to come in 2022.

The key changes that should be taking effect soon include:

1. Super guarantee increased to 10%

The Super Guarantee will increase from 9.5% to 10%. Super guarantee is the minimum amount an employer must contribute to an employee’s super account. This is calculated as a percentage of the employee’s wage.

Super guarantee has been frozen at 9.5% since 2014, and an increase is long overdue. It was theorised that increasing the guarantee would negatively impact wage growth, thereby adversely affecting living standards in working life. The theory was that there were alternative ways to improve retirement outcomes.

However, wages have not improved much in recent years despite super guarantees being kept at 9.5% for longer than originally legislated. Accordingly, in an attempt to improve life after retirement, the government has legislated the increase to 10% due to take effect from the first of July 2021.

2. Transfer cap indexed between $1.6 and $1.7 million

The transfer balance cap, the amount a person can transfer from accumulation phase to a retirement phase pension, will be increased to $1.7 million for people starting a new pension or those with a transfer balance account less than $1.6 million since 1 July 2017.

Additionally, the contribution cap will be increased:

- Concessional contributions are increased $25,000 to $27,500 per year, and taxed at 15%

- Non-concessional contributions are increased from $100,000 to $110,000

- The “bring forward arrangement” will also be increased from $300,000 to $330,000

These changes may be subject to certain measures and obtaining advice from your financial adviser is recommended before any action is taken.

3. Total super balance increased to $1.7 million

The ability to make non-concessional contributions is subject to a total super balance cap. This cap will be increased to $1.7 million as of the first of July.

Note that age limitations may apply.

4. Your super will follow you to your new job

“Stapling” is a new measure meant to help limit the creation of multiple accounts for the same employee due to changing jobs. Now, your existing super account will be “stapled” to you, allowing your new employers to access this information from the ATO.

Accordingly, you now have the option to nominate your preferred fund when you start a new job, and the employer will pay your super contributions to this account.

Failing to do so, your employer will be able to log to an online ATO service and enter your details to obtain information on which super fund your account is linked to. The employer will pay contributions to this account.

“Stapling” is a new measure meant to help limit the creation of multiple accounts for the same employee due to changing jobs. Now, your existing super account will be “stapled” to you, allowing your new employers to access this information from the ATO.

Accordingly, you now have the option to nominate your preferred fund when you start a new job, and the employer will pay your super contributions to this account.

Failing to do so, your employer will be able to log to an online ATO service and enter your details to obtain information on which super fund your account is linked to. The employer will pay contributions to this account.

In the absence of an existing account and having failed to nominate your preferred fund, your employer will be able to pay your super to their default fund.

5. Launch of the YourSuper comparison tool

In an effort to help you choose the best fund for you, the ATO is introducing a new fund comparison tool. YourSuper will be introduced by 1 July 2021 and will include a table functionality that allows you to rank products by fees and investment returns. It will also show you all your current super accounts and give you the option to consolidate them to minimise the fees you are paying.

6. Underperforming super fund admins will be banned from taking new members

One of the most welcome changes this year, superannuation funds will be forced to undergo an annual performance test by the Australian Prudential Regulation Authority. If a fund fails this test and is deemed underperforming, it will need to inform its members within 3 months and provide information on the YourSuper comparison tool.

Funds that fail two consecutive tests will not be allowed to take on new members until their performance improves.

This increased transparency is believed to incentivise members of underperforming funds to switch to better funds and thereby boost their retirement savings. Switching to a better performing fund could increase retirement savings by 60 to 90 thousand dollars depending on your age when the switch is done.

Changes announced in the May 2021 Federal Budget are meant to bring a positive impact to those in part-time and casual employment, particularly women. The key changes include:

- Removal of $450 monthly income threshold for super contributions

- Increase of the withdrawal limit for the First Home Super Saver Scheme to $50,000

- Those aged between 67 and 74 will no longer need to pass the work test to make contributions

- Transfer of unclaimed superannuation money to KiwiSaver accounts

- Downsizer contribution age limit dropped to 60

- Visibility of super assets in divorce settlements

And much more.

If you’re unsure whether you’re getting the most out of your super and how these changes will affect you, get in contact with our expert advisers now.

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