Super boost for older clients given green light

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 amending legislation that provides contribution flexibility for those approaching retirement.

Since 1 July 2022, clients are able to make voluntary super contributions between ages 67 and 74 without the need to meet the work test. However, a work test is required to be met by clients within this age range in order to claim a deduction on any personal deductible contributions they make. Also from 1 July 2022, those aged 74 or younger on 1 July 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.

Although more older Australians may be able to make additional contributions for a longer period of time, careful planning may still be required this financial year and into the future, as it presents an opportunity to further boost retirement savings. For example, a client who has turned 73 this year could have been eligible to make a bring forward non-concessional contribution of $330,000 this financial year. If they have done this already they will not be able to make a further non-concessional contribution until the year in which they turn 76, when they are no longer eligible to make personal contributions (with the exception of a downsizer contribution).

As an alternative, a contribution of $110,000 could be made this financial year and again next (when the client turns 74). They could then utilise the bring forward contribution of $330,000 the year after (when they turn 75 – however, the contribution must be received by the super fund before 28 days in the month following their 75th birthday). Overall, clients in this position will have been able to add $550,000 to their retirement balances.

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 $1.9m total super balance cap is also relevant to the amount they can contribute under the non-concessional contribution rules.

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.

Now is the time to consult, confer and co-ordinate an approach for your clients who were previously precluded from making voluntary contributions as they had failed previous work test requirements. 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).

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.