Super boost for older clients given green light

Technical resource

From 1 July 2020, clients under age 67 won't need to satisfy the work test to make voluntary contributions. The upper age limit for spouse contributions will also increase to 75.

Information for advisers only.

With many super account holders nervous about recent market volatility, those close to retirement will no doubt be contemplating what impact this volatility has had on their retirement plans. Will they have to push back retirement, consider lowering their income expectations or will it warrant a complete overhaul? Fortunately, there is some light at the end of the tunnel for older Australians with the Government registering Regulations that provide contribution flexibility for those approaching retirement.

From 1 July 2020, clients will be able to make voluntary super contributions, both concessional and non-concessional, at ages 65 and 66 without the need to meet the work test, which will now only apply from age 67.  In addition, a spouse contribution can be received up to the member’s 75th birthday (previously only until their 70th birthday), although if the receiving member is aged 67 or older in that year, they will need to meet the work test in that year. Also proposed to change from 1 July 2020 (with amending legislation currently before Parliament), those aged 65 and 66 could make up to three years of non-concessional contributions under the bring forward rule. These measures will no doubt be a welcome announcement for those in retirement who have wanted to make additional contributions to super but have failed the meet the work test requirements.

For those able to make additional contributions, careful planning will be required this financial year and next, as it presents an opportunity to further boost retirement savings.  For example, a client who has turned 65 this year could have been eligible to make a bring forward non-concessional contribution of $300,000 this financial year.  If they have done this already (in the absence of legislative certainty), they will not be able to make a further non-concessional contribution until the year in which they turn 68, and the work test will have to be met.

As an alternative, a contribution of $100,000 could be made this financial year and again next (when the client turns 66).  They could then utilise the bring forward contribution of $300,000 the year after (when they turn 67) and, if made before their 67th birthday, without the need to meet the work test.  Overall, clients in this position will have been able to add $500,000 to their retirement balances without the need to meet the work test.

It is also important to remember that with the gap between a member’s total superannuation balance at the previous 30 June and the current $1.6M total super balance cap, delaying utilising the bring forward provision to next financial year may increase the level of contributions that could be made as a result of adverse market conditions due to the COVID-19 environment.

These measures were first touted as an opportunity to provide contribution flexibility for those approaching retirement age. In fact, some clients who can take advantage of these changes will already be retired and as such the conversation around risk profile in retirement will need to be addressed. When faced with finite income, preserving capital will be front of mind. So perhaps a more pressing question is where the funds should be held once they are contributed. Should they remain in cash or be invested in line with the clients’ overall risk profile? The answer is not quite that black and white and will differ for each client and their comfort with an acceptable level of risk in exchange for return. 

Whilst confirmation of these changes has only been received close to year end, now is the time to consult, confer and co-ordinate an approach for your clients who had been awaiting confirmation of these measures. Checking superannuation balances and contribution history remains vitally important to ensure no excess contribution issues, or inadvertent triggering of the bring forward provisions (when not intended). 

And while 2020 is a year like no other, this time of year is like every end of financial year – a race against the contribution clock. For more information on the super boost measures and how they may benefit your clients contact the BT Technical Services team on 1800 655 901 or email technical@btfinancialgroup.com.

 

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This document has been prepared by BT, a part of Westpac Banking Corporation ABN 33 007 457 141 AFSL and Australian Credit Licence 233714 (Westpac), and is current as at 02 June 2020. Material contained in this document is an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. This document may contain material provided by third parties derived from sources believed to be accurate at its issue date. While such material is published with necessary permission, no company in the Westpac Group accepts any responsibility for the accuracy or completeness of, or endorses any such material. Except where contrary to law, we intend by this notice to exclude liability for this material. The information in this document regarding legislative changes is intended as a guide only. It is not exhaustive and does not constitute legal advice. It is based on our interpretation of the law currently in force on the date of this notification and does not undertake to provide any updates to the extent that any of the laws or regulations referred to change in the future. Consequently, it should not be relied upon as a complete statement of the relevant laws, the application of which may vary, depending on your particular circumstances. This information does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness, having regard to these factors before acting on it. Any case studies and examples used in this document are purely for illustration only.