The new financial year often brings new rules and new strategies for superannuation and the 2020/21 financial year is no exception. The two key changes this year are: the removal of the work test for anyone aged 66 and 67 years old who wish to make non-concessional superannuation contributions 2020-21; and an extension of spouse contributions to those aged between 70 to 75 years.
Unfortunately, at this time the change in rules that will allow people aged 66 and 67 to access to the ‘bring forward’ rules have not been passed into law. We expect this change to be passed into law in August 2020.
The 50% reduction in the minimum pension rate for account-based pensions, will also apply for the of the 2020/21 financial year due to the COVID-19 pandemic.
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Work test superannuation contributions 2020-21 to age 67
Regulations have recently changed that push the age where the work test is required to be met to age 67. This means persons currently aged 65 or 66 who don’t meet the work test will be able to make contributions after 1 July 2020 provided they are under age 67 at that date.
Prior to 1 July 2020 if a person is (currently) aged between ages 65 and 74, to make contributions to superannuation they must meet the work test. The work test requires a minimum of 40 hours in any consecutive 30 day period. The age the work test applies has been increased to age 67 from 1 July 2020.
We recently covered the changes to the work test in the following article: Contribution and work test change for SMSF members aged 65 to 67
Bring-forward rule for non-concessional superannuation contributions 2020-21
Unfortunately, the law change which intended to extend the bring forward non concessional contribution measures to apply up to age 67 did not become law before 30 June 2020.
We are now in a situation where the work test age has been extended to 67, meaning someone aged 65 or 66 from 1 July 2020 can made a $100,000 non-concessional contribution, but cannot use the bring forward rule.
The law when passed will apply from 1 July 2020.
However, it must be stressed that individuals should not assume the new laws will pass. SMSF members will need to wait until the change becomes law before triggering the non-concessional bring-forward cap.
It’s important to understand that a person’s total superannuation balance impacts the amount of non-concessional contributions that can be made to their SMSF:
|Total Superannuation Balance on 30/06/2019||Non-concessional cap available||Bring-forward period|
|Less than $1.4m||$300,000||3 years|
|$1.4m to $1.5m||$200,000||2 years|
|$1.5 to $1.6m||$100,000||1 year only (current)|
|More than $1.6m||$0||Not available|
It’s also important to understand that the total superannuation balance is determined based on 30 June of the prior financial year, i.e. 30 June 2019 for the current SMSF end of financial year 2020.
Reduced 30/06/2020 Total Superannuation Balance Opportunities
There may be a silver lining with the impact COVID-19 has had on financial markets and SMSF portfolios during the 2020 financial year.
For SMSF members where their total superannuation balance (TSB) was just over $1.6m as at 30/06/2019, with the new financial year clicking over 30 June 2020 balances can be used to determine eligibility to make non-concessional contributions.
For example, if a persons TSB was $1.7m as at 30 June 2019, but dropped by say 12% to $1,496,000 as at 30 June 2020, there is now the opportunity for the individual to make non-concessional contributions again the in 2021 financial year where they weren’t previously eligible due to their TSB being above $1.6m.
This means that provided the individual is under age 65, or if between ages 65 and 67 and they’ve met the work test rules, they are eligible to make non-concessional contributions. At the time of writing the change in legislation to enable people between the ages of 65 and 67 to trigger bring-forward non concessional contributions has not been passed.
Other changes to superannuation from 1 July 2020
In addition to the changes to superannuation contributions 2020-21, there are a number of other changes impacting SMSFs and superannuation from 1 July 2020:
- Pension minimum withdrawals are halved again for the 2020-21 financial year
- Individuals suffering hardship can access another $10,000 from the superannuation accounts under the COVID-19 early release scheme
- SMSF administrative penalty units increase from $210 per unit to $222 for any infringements or SMSF reportable contraventions occurring from 1 July 2020
If you have any questions in regards to the content of this article, please contact us.
You may also want to have a look at the following: total superannuation balance