Superannuation Contribution Window Is Open for Retirees 

Superannuation Contribution Window Is Open for Retirees

 

The end of the financial year is fast approaching and it is timely to take stock of the opportunities to top up superannuation, taking into account the expanded rules for retirees and change in total superannuation benefit (‘TSB’) thresholds available from 1st July 2023. 

Your TSB is comprised by adding all of your superannuation accumulation and pension accounts (defined benefit pensions are based on a special calculation), the value of certain limited recourse borrowing amounts in a SMSF or small APRA fund, any roll-over benefit in transit and subtracting any personal injury or structured settlement contributions previously paid into your super. 

If you are a retiree below age 75 with TSB of less than $1.7 million on 30th June 2022 (or less than $1.9 million on 30th June 2023) the window to make super contributions is open! And if you have less than these amounts (on those dates) you may be able to use the ‘bring forward’ rules which allow an individual to contribute up to three years’ limits in one year (currently up to $330,000). 

Given these opportunities and indexation changes it is worthwhile taking care with respect to the timing (pre or post 30 June) and the amounts contributed – the impact of which may affect how much you can contribute in total. 

This article excludes discussion of the transfer balance cap, ‘TBC’ (which governs how much you can have in retirement phase superannuation pension accounts) and indexation of the general TBC available on 1st July 2023. If your TBC may affect your superannuation contribution strategy (for example, because you only wish to contribute what can be rolled into retirement phase pension) then it is best to seek personal financial advice. In fact, before making any superannuation contribution it is best to seek personal financial advice (and preferably from an independent financial adviser), which this article does not provide. 

Why Superannuation? 

Superannuation continues to be a preferred structure to house wealth in retirement, primarily due to the tax concessions available, which includes nil tax on investment earnings for retirement phase pension accounts and up to 15% tax on accumulation (non-pension) accounts. And once you reach age 60 all super withdrawals (for taxed accounts, which most are) are tax free. 

While the government has proposed an additional 15% tax on the earnings of an individual’s TSB above $3 million from 1 July 2025, this is still only a proposal and if legislated is not expected to affect the majority of Australians (in the medium term). If this potential change is likely to affect you, it is worthwhile considering planning options to limit the impact of this change – and we would be pleased to discuss with you how we may be of assistance. 

Superannuation contributions are preserved until access rules are met. If you may need to access the contributions and you have not met the preservation rules then it may be better to invest elsewhere.

Superannuation Rule Changes 

Since 1 July 2022 the following changes apply for non-concessional (after tax) contributions: 

  • Retirees below age 75 can now make contributions provided their TSB are below the required threshold at the end of the previous financial year (refer below); and 
  • All individuals below age 75 can use the ‘bring forward’ limit rules to contribute up to three years of annual limits in one year (up to $330,000) subject to meeting TSB thresholds (see below for details). 

Previously, those age 67 plus (below age 75) had to meet a work test to be able to make superannuation contributions, in addition to meeting TSB threshold. And it was not possible for those age 67 plus to utilise the bring forward rules. 

These contribution rule changes are open to everyone, irrespective of whether you have used all of your available personal TBC (mentioned above). 

TSB Threshold Changes 

The ability to make non-concessional contributions is based on your TSB and age (and whether you are currently in a bring forward contribution arrangement). The bring forward rules allow individuals to ‘bring forward’ some or all of the following two years’ annual limits if their TSB are less than the required thresholds as shown below. 

The TSB thresholds will increase on 1 July 2023 due to strong high CPI data in the December 2022 quarter as shown below:

Non-Concessional Cap TSB on 30 June of Previous Year (Current – Year End 30 June 2023) Expected Increase in TSB Threshold from 1 July 2023 
$330,000 < than $1.48 million < than $1.68 million 
$220,000 $1.48 million to < $1.59 million $1.68 million to < $1.79 million 
$110,000 $1.59 million to < $1.7 million $1.79 million to < $1.9 million 
Nil $1.7 million or more $1.9 million or more 

From 1 July 2023, if your TSB are below $1.9 million at the end of the previous financial year (i.e. at 30th June 2023 for the financial year ended 30 June 2024) you can make a non-concessional contribution provided you have not triggered the bring forward rules in the last 2 years (or if you have, that your contribution is within the unused amount). If your TSB are above $1.9 million you are not able to make a non-concessional contribution. If your TSB are below $1.68 million you can contribute up to $330,000 using the bring forward provisions (provided you are not currently in a bring forward arrangement). 

Excess Contributions 

If you make non-concessional contributions in excess of your annual limit, then the amount (and associated earnings) can be withdrawn when the ATO writes to you. It is important to withdraw the excessive amount when possible, otherwise penalty tax applies of 47% applies. 

Non-Concessional Annual Limit 

The annual non-concessional limit of $110,000 per individual will not change on 1 July 2023. This limit is indexed in line with AWOTE (it is 4 times the concessional, pre-tax limit) which was not sufficiently strong for the last December quarter. 

Contribution Strategy Impact 

The affect of the TSB threshold increases means that it some circumstances it may be beneficial to delay contributions until after 1st July and/or delay utilising the bring forward provisions to be able to contribute more, in total, over coming months. If eligible, you may also wish to consider withdrawing a higher pension payment (or lump sum) in June, in order to contribute more from 1st July. 

Keep in mind that utilising the bring forward provisions in a financial year means missing out on potential future indexation of the non-concessional limit over the following 2 years. 

For example, Anne (age 70) has TSB in pension phase of $1.7 million today and had TSB of $1.65 million on 30 June 2022. She has some funds outside superannuation and wishes to maximise the amount she can contribute to superannuation over coming months. She could contribute $110,000 in June and $110,000 in July 2023 ($220,000 in total). Alternatively, she could withdraw $25,000 now and contribute $330,000 in July, thereby allowing $305,000 to be contributed over the same period. However, Anne will not be able to make top up contributions for any annual limit indexation increases in the financial years ending 2025 and 2026. 

If you would like to understand how these changes and opportunities may affect you please contact us for an obligation free discussion. 

Note that nothing in this article constitutes personal financial advice. The comments are general in nature and do not take into account the reader’s objectives, financial situation or needs. You should consider your own personal circumstances and seek personal financial advice prior to making any investment decision and make sure you obtain and read the relevant product disclosure statement(s). 

Enrich Investing Pty Ltd (ABN: 59639869300) is a Corporate Authorised Representative of Independent Financial Advisers Australia, AFSL 464629