Super changes you need to know

More contributions and more choices are coming to superannuation from 1 July 2021 following a series of limit increases. The changes apply to all superannuation accounts, including institutional funds and self-managed super funds (SMSFs). Caps on contributions are increasing while governance is being overhauled to promote transparency, minimise fees and eliminate poor performing funds.

Like everything super related, the changes are complex and involve lots of acronyms. It’s worth checking with a financial adviser if you are unsure on the finer details.

Super contributions

From 1 July 2021, most people can put more of their retirement savings into superannuation due to the way contribution limit increases are linked to wages and prices.

1.     How much is contributed for you is going up

The Superannuation Guarantee (SG), the mandatory contribution made by your employer, is increasing from 9.5% to 10%. It is legislated to rise by 0.5% until 1 July 2025 when it will reach 12%. However, there is opposition to the increases due to arguments about the tradeoff between current wages and future superannuation, so the increments are far from assured.

2.     How much you can contribute is going up

A range of changes allows most people to put more into super.

·       Concessional (pre-tax) contributions are increasing from $25,000 to $27,500 per year. Concessional contributions are taxed at 15% upon entry.

·       Non-concessional (post-tax) contributions (NCCs) are increasing from $100,000 to $110,000 per year. Non-concessional contributions are not taxed upon entry, although you will have already paid tax on the sum.

·       Activating the ‘bring-forward arrangement’ allows contributions of up to three years’ worth of NCCs in a single year. That is increasing alongside the NCC from $300,000 to $330,000. The three-year bring-forward maximum contribution is based on the non-concessional contributions cap at the time the bring-forward is triggered. Triggering it before July 1 will exclude you from accessing the increased cap.

3.     How much you can contribute over your lifetime is going up

Your ability to add to your super with NCCs is limited by your total super balance (TSB). After your super balance exceeds the TSB, no more NCCs can be made, but the TSB cap is increasing from $1.6 million to $1.7 million on 1 July. Note there are eligibility limits depending on your age on 30 June of the previous financial year.

4.     How much you can transfer from super to retirement is going up

The amount you can transfer from your accumulation phase superannuation account to a retirement phase pension – the transfer balance cap (TBC) - is going up to $1.7 million for people starting a new pension. Investment returns in the pension phase are generally tax free while they are taxed at 15% in the accumulation phase.

Anyone with a transfer balance account of $1.6 million any time since 1 July 2017 is not eligible for the $100,000 increase. Those with transfer balance accounts below that previous TBC cap will receive a portion of the increase. This calculation becomes complicated and most people affected should obtain financial advice. Those who have yet to start a retirement phase income stream before 1 July 2021 will receive the full increase. People with more than one fund, such as an SMSF, a retail fund or an industry fund, need to know that all balances are included in the transfer balance cap.

The bottom line is more contributions can be made. Chat with your financial planner about how much of the increase you will be eligible for.

Summary of contribution changes

Source: Australian Tax Office

Changes in governance and monitoring

Changes are also expected in the way super funds and SMSFs operate because of the Government’s ‘Your Future, Your Super’ (YFYS) legislative package. Some of these changes are still subject to industry consultation and may not clear legislation before 1 July 2021, given that is less than two months from now.

Use of SuperStream

From 1 October this year, SMSFs will need to use SuperStream to roll over super to or from their funds. SuperStream is a standard used across the super industry to send money and information in a consistent way. To use SuperStream, the ATO recommends having:

• An electronic service address (ESA) providing rollover SuperStream services.
• An Australian Business Number.
• Up-to-date details recorded with the ATO, including your SMSF's unique bank account for superannuation payments.

Superannuation will follow you

Many Australians have multiple superannuation accounts from previous jobs. Duplicated fees and possibly insurance policies lead to lower returns and less savings in retirement.

For 1 July, your superannuation account will follow you when you change jobs, and your new employer will pay contributions into your existing account. If your first superannuation account is performing poorly, you may not want it to follow you. Check your super provider’s fees and performance as you have the right to choose your fund.

Superannuation funds easier to compare and more accountable

The Government is rolling out a new tool, ‘YourSuper’, to compare public superannuation products based on performance and fees. There will be annual performance tests and underperforming funds will be required to notify members and refer them to the ‘YourSuper’ comparison tool. Those funds that fail the test twice in consecutive years will not be allowed to accept new members.

Superannuation funds will be required to be more transparent in how they spend fund money, for example, on advertising campaigns or sponsorships. Funds that are unable to justify expenditures are in the best financial interest of the members will face penalties.

As the YFYS package has yet to pass, these proposals are subject to change.

This article is general information based on an interpretation of current or proposed legislation, and you should check your circumstances with a financial adviser. Analysis as at 7 May 2021. This information has been provided by Firstlinks Pty Ltd (ACN 161 167 451), a Morningstar publication, for WealthHub Securities Ltd ABN 83 089 718 249 AFSL No. 230704 (WealthHub Securities, we), a Market Participant under the ASIC Market Integrity Rules and a wholly owned subsidiary of National Australia Bank Limited ABN 12 004 044 937 AFSL 230686 (NAB). Whilst all reasonable care has been taken by WealthHub Securities in reviewing this material, this content does not represent the view or opinions of WealthHub Securities. Any statements as to past performance do not represent future performance. Any advice contained in the Information has been prepared by WealthHub Securities without taking into account your objectives, financial situation or needs. Before acting on any such advice, we recommend that you consider whether it is appropriate for your circumstances. This article does not reflect the views of WealthHub Securities Limited.