Key takeaways
- Compulsory super contributions are legislated to increase from 9.5% to 10% as of 1 July 2021
- Caps for your own super contributions will also increase, enabling you to add more to super
- The maximum amount of super that you can transfer into a retirement pension account will increase by $100k.
There are changes affecting super from 1 July 2021 which could impact you.
In this article we outline what those changes are so you can be better prepared.
Compulsory super contributions increasing
Your compulsory super contributions—paid by your employer—are legislated to increase from 9.5% to 10% as of 1 July 2021.
But it won’t stop here.
The rate will continue to increase incrementally by 0.5 percent every year until it reaches 12 percent by 2025.
The intention behind this measure is to see a greater proportion of retirees relying less on the age pension and more on their retirement savings.
Changes to your own super contributions
Currently there is a limit to the amount of super contributions you can make yourself, whether you make these using your take home pay or through your employer.
As of 1 July 2021, this limit is changing so you may be able to add more to your super.
Before tax contributions
The current cap or limit you can contribute to super using your income—before it’s been taxed—is $25,000 a year.
From 1 July 2021, this limit will change to $27,500 a year. You can also add any unused cap amounts that you may have accrued since 1 July 2018 if you’re eligible.
Your own contributions
If you currently make contributions with your own money into super—that is using income after it’s been taxed or from your savings—the current limit you can contribute is $100,000 a year.
From 1 July 2021, this will change to $110,000 a year. If you’re eligible you can also contribute up to three years’ worth of your own contributions ($330,000) under the bring-forward rules.1
1Assumes the person is under the age of 65 at some time during the year when a contribution was made and that the total super balance was less than $1.48m at 30 June 2021.
Increase in super transfer limit for retirement pensions
The maximum amount of super that you can transfer into a retirement pension account will increase by $100k from 1 July 2021.
Currently you can transfer up to $1.6 million from your super into a retirement pension account. This will change to $1.7 million to meet the rising cost of living. It won’t apply to everyone though.
The main benefit of moving your money from a super account into a retirement pension is you don’t pay tax. This is because the earnings you generate from your investments are tax-free.
Note: if you exceed the limit, you will be liable to pay tax on the excess transfer balance earnings.
Who does the change apply to?
How much you’ve already moved into your pension account, if you have one, may affect whether this increased limit applies to you.
The table below highlights the various conditions.
| First transfer date* | Transfer amount | Transfer balance cap from 1 July 2021 |
|---|---|---|
| On or after 1 July 2021 | Up to $1.7 million | $1.7 million |
| Before 1 July 2021 | Less than $1.6 million | $1.6 million – $1.7 million |
| Before 1 July 2021 | $1.6 million | $1.6 million |
*Transfer date refers to the day that you first commenced a retirement pension.
Impact on other limits
Other caps and limits, which may apply to you, will also be adjusted on 1 July 2021.
The limit on making your own contribution into super—using your take home pay—will increase from $1.6 million to $1.7 million.
If you have a total super balance of $1.7 million or more, you will not be eligible for the bring-forward arrangements from 1 July 2021.
The limit on whether you are entitled to a government co-contribution will increase to $1.7 million, as will the limit on whether you can claim a tax offset for super contributions you make on behalf of your spouse.
If you have questions and would like your financial situation to be evaluated, please email us on ds@bluerocke.com with your contacts, for an exploratory meeting, at our cost, not yours.
Article source: https://www.mlc.com.au/personal/blog/2021/06/key-changes-to-super
