Top 5 EOFY tips for financial advisers

With the end of the financial year just around the corner, top of mind for many financial advisers is the indexation of superannuation caps and thresholds, which includes an increase to the ‘preservation age’ relating to when Australians can access their super, as well as the qualifying age for the age pension. Usually a mundane affair, this time around the updates due to indexation, which are effective from 1 July 2021, can have significant impacts on Australians’ retirement plans.

BT’s Technical team have compiled a list of EOFY tips below, based on frequently asked questions from advisers so far in this June quarter, such as on indexation. The team typically field over 2300 adviser queries each quarter, with EOFY being a peak period.

Tip #1: Prepare for indexation from 1 July

Indexation applies on a range of thresholds, so be prepared for questions from clients on how they may be impacted. For example:

  • the superannuation preservation age will increase for those turning age 59 from 1 July 2021;
  • the age pension qualifying age will also increase to 66 years and 6 months. Notably, this is the last incremental increase before arriving at the currently legislated age 67 from 1 July 2023; and
  • from 1 July 2021, the concessional contributions cap increases to $27,500, and nonconcessional contributions cap to $110,000.

“Watch out, in particular, for some tricky figures when calculating your client’s eligibility to make a bring-forward contribution,” said Tim Howard, Technical Consultant in BT’s Technical Services team. “For instance, from 1 July 2021, clients will need a total super balance of less than $1.48m to make a full $330,000 bring-forward contribution, and less than $1.59m to make a two-year, $220,000 bring-forward contribution.”1

Furthermore:

  • the general transfer balance cap will increase to $1.7m from 1 July 2021 (up from $1.6m); and
  • the superannuation guarantee increases to 10% – some employers may pass on the increase and therefore increase their employees’ total remuneration package, while others may reduce their employees’ take-home pay by 0.5% to fund their increased SG liability.

Tip #2: Consider downsizer contribution as part of tax planning

Older Australians who have sold their main residence could consider making a downsizer contribution as part of their retirement and tax planning. This strategy has gained even more attention since the May Federal Budget when it was announced that the eligibility age is proposed to be lowered from 65 to 60 years from 1 July 2022.

“Clients are looking to use this measure as a way to boost their retirement savings,” Mr Howard said. “Going forward, eligible individuals could be continuing to work through their early sixties – although there is no requirement to be working – and also capitalise on the booming property markets across the country.”

The downsizer contribution will not count towards a client’s non-concessional contributions cap, so it can still be made even if they have a total super balance greater than $1.6m ($1.7m from 1 July 2021). The contribution is however limited to $300,000 or the proceeds of sale, whichever is the lower amount.

Advisers should keep in mind that clients need to make the contribution within 90 days of receiving the sale proceeds.

Tip #3: Keep an eye on the passage of the bring-forward contributions legislation

The eligibility age for making a bring-forward contribution is proposed to increase from being less than 65 to less than 67 (at any time during the financial year), based on draft legislation in the Treasury Laws Amendment (More Flexible Superannuation) Bill 2020. The Bill is currently in the Senate.

This means that, for example, clients who are about to turn 67 years currently have a nonconcessional limit of $100,000. However, should the rules change, effective from 1 July 2020, they may have a non-concessional limit of $300,000 – if their total super balance is below $1.4 million. (A client in a similar position from 1 July 2021 would have the higher indexed caps of $110,000 and $330,000 available.)

“Keep in mind there is a somewhat related measure from the 2021 Federal Budget that may benefit clients in this difficult position,” Mr Howard said. “It has been proposed that the work test won’t apply to non-concessional contributions from 1 July 2022 for those ages 67 to 74. Should this become law, a non-working retiree who has missed their bring-forward window could potentially contribute up to the general non-concessional cap of $110,000 each and every year, up to age 74.”

Tip #4: Check if your client is eligible for the Pension Loans Scheme

The Government has announced an increase to the flexibility and attractiveness of the Pension Loans Scheme (PLS) for eligible senior Australians. From 1 July 2022, the following enhancements will be made:

  • No Negative Equity Guarantee – borrowers under the PLS, or their estate, will not find themselves in a position of owing more than the market value of their property; and
  • Immediate access to lump sums – eligible individuals will be able to receive a maximum lump sum advance payment equal to 50% of the maximum age pension (currently $12,385 for singles, and $18,670 for couples combined).

This can be an effective way for retirees to access the equity in their homes to create a meaningful cash-flow boost, so they can fund their retirement income needs. The PLS can be an integral part of a client’s financial plan in the next two years.

Tip #5: Make arrangements for opt-in of fees

From 1 July 2021, advisers will be required to obtain annual client consent for ongoing fee arrangements, for all clients – and so should have the administrative processes in place to meet this requirement. ASIC has recently provided additional clarity regarding the processes for obtaining consent.

1 Further information is on the Australian Taxation Office website:
https://www.ato.gov.au/Individuals/Super/In-detail/Growing-your-super/Super-contributions---too-much-canmean-extra-tax/

More Information 

Lisa Parrett
Media Relations, BT
M: 0432 933 796
E: Lisa.Parrett@btfinancialgroup.com