Super changes for the better

Key takeaways

• The compulsory super paid by your employer is now 10.5% of your income and is planned to increase to 12% by 2025

• The maximum amount you can move from super into a tax-free retirement pension product is now $1.7 million

• If you accessed money from your super due to COVID, you can now recontribute it back in until 30 June 2030 (up to a maximum of $20,000).

There’s been a raft of positive super changes this financial year. Here’s a brief outline of key changes and what they could mean for you.

You can put more into super

The more money you have in your super when you retire, the more choice you have about your retirement lifestyle. Some recent changes have made boosting your super balance easier.

• Compulsory super contributions. On 1 July 2022, the compulsory super paid by your employer went up from 10% to 10.5% of your income. That 10.5% is scheduled to increase by half a percent each year till we hit 12% in 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.

• Before-tax super contributions. Previously capped at $25,000, you can now contribute up to $27,500 a year in your super from your pre-tax income. This includes your compulsory super contributions.

• Excess contributions (before-tax). Previously the ATO would charge an excess contributions charge if you exceeded your before-tax super contribution limits. But that charge has been dropped. However, you will still need to pay tax on the excess super contributions (at your personal tax rate), less a 15% tax offset to account for the contributions tax that the super fund deducted from the excess contributions.

• After-tax contributions. If you want to contribute to super using money you’ve already paid tax on – for example, your savings – you can now contribute up to $110,000 a year (was previously $100,000). If you’re eligible – and have the cash – you can also contribute up to three years’ worth of after-tax contributions ($330,000) under what’s called the bring-forward rules. 

Making up for COVID withdrawals

During the economic turmoil caused by lockdowns in 2020, the Government allowed people to draw down on their super. Some three million Australians took this opportunity. Those super withdrawals represent a major opportunity cost – that money, invested over decades, could make a big difference to super balances at retirement. To help people catch up on that saving, new rules have been put in place which allow you to ‘recontribute’ to your super. These recontributions:

• must occur between 1 July 2021 and 30 June 2030 (up to a maximum of $20,000)

• can’t be more than the total amount of super you took out under the COVID early release scheme, and

• can’t be claimed as a personal superannuation deduction.

Importantly, these contributions won’t count against your annual cap for after-tax contributions, provided you complete the ATO form and give this to your super fund on or before the time of making the recontribution.
 

The super transfer limit has increased

The maximum amount you could move from super into tax-free retirement pension products, such as Account-Based-Pensions and Annuities, was $1.6 million (called the ‘transfer balance cap’). Because of indexation, that has now been increased to $1.7 million. 
 

Changes to minimum withdrawals from pension products

In response to COVID, the Government changed the minimum amount you could withdraw from retirement pension products. Recognising that people’s retirement capital might fall significantly during the COVID shock, the Government helped protect their capital by effectively halving the minimum amount that had to be withdrawn. This temporary change will continue until the 2022-23 financial year.

Whilst the exceptionally strong recovery in global investment markets means many investors would have seen a big recovery in the value of their retirement capital, the halving of the minimum withdrawal amount has been maintained for another year. In this article, you can find more detail on how that change works.

Super with MLC

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We also manage more than $122b in super assets¹. This means a lot of Australians trust us with their money.

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Your Future, Your Super

In addition to the changes outlined above, the Government also passed the Your Future, Your Super reforms (YFYS Reforms) that aims to make the super system better for members in four key ways:

1. Stapling – preventing the creation of multiple unintended super accounts.

   Stapling means that a new super account won’t automatically be created every time you start a new job, helping you avoid holding multiple accounts with fees, insurance arrangements and insurance premiums.

2. YourSuper – empowering members by making it easier to compare products through a new Government comparison website called ‘YourSuper’.

   YourSuper is provided by the ATO and accessible from MyGov and makes it easier for members to compare product performance. The Government says this tool “is focused on providing members with simple, clear and trusted information about their retirement savings”².

3. Performance test – holding funds to account for product performance through an annual performance test conducted by the Australian Prudential Regulation Authority (APRA).

   The assessment is based on comparing a product’s net investment returns (including fees and taxes) with a benchmark return and fees. Whilst performance has always been in focus, super funds are now on notice to ensure they are providing the best value for their members, aiming to protect members from poor outcomes.

4. Best financial interest – increasing transparency and accountability for how super funds use members’ savings.

   The Best Financial Interest requirements are designed to “sharpen the focus” of super trustees, ensuring decisions, such as those on expenses, are in the best financial interests of members.

    

You can find out more about Your Future, Your Super reforms here.

The Government’s own analysis suggests the YFYS Reforms will have a number of benefits for members. They make it easier for members to engage with their super savings and make better decisions³.

1 As at 30 September 2022
2 https://treasury.gov.au/sites/default/files/2020-10/p2020-super_0.pdf
3 lbid

Important information and disclaimer

This article has been prepared by NULIS Nominees (Australia) Limited ABN 80 008 515 633 AFSL 236465 (NULIS) as trustee of the MLC Super Fund ABN 70 732 426 024. NULIS is part of the group of companies comprising Insignia Financial Ltd ABN 49 100 103 722 and its related bodies corporate (‘Insignia Financial Group’). The information in this article is current as at November 2022 and may be subject to change. This information may constitute general advice. The information in this article is general in nature and does not take into account your personal objectives, financial situation or needs. You should consider obtaining independent advice before making any financial decisions based on this information. You should not rely on this article to determine your personal tax obligations. Please consult a registered tax agent for this purpose. Opinions constitute our judgement at the time of issue. The case study examples (if any) provided in this article have been included for illustrative purposes only and should not be relied upon for decision making. Subject to terms implied by law and which cannot be excluded, neither NULIS nor any member of the Insignia Financial Group accept responsibility for any loss or liability incurred by you in respect of any error, omission or misrepresentation in the information in this communication.