Building super if you are 65 years or older

Posted on 15th July 2020 by Christabelle Harris

Recent and proposed changes in superannuation legislation have created opportunities for those looking to boost their super.

Many people tend to think of turning 65 as the “hard finish” of years of planning and saving for retirement. Age 65 does still remain a key point in retirement and superannuation planning with an automatic trigger for having full access to the funds in your super at age 65, regardless of whether you are working or not.

Superannuation legislation amendments are set to apply from 1 July 2020 increasing the age at which the work test starts to apply for making voluntary concessional and non-concessional super contributions.  Currently members over the age of 65 need to meet the ‘work test’ in order to make voluntary contributions to their super fund.  Once the Bill is finalised in Parliament, the age at which the work test starts to apply increase from 65 to 67. Please see the information below on the different types of contributions and criteria for meeting the work test. 

The main types of super contributions are summarised below:

• Concessional (before-tax) contributions including:
  • Employer contributions
  • Salary sacrifice amount
  • Personal concessional contributions – claimed in personal tax return

Concessional contributions are generally taxed at 15% within your super fund (unless an untaxed super fund e.g. West State Super and Gold State Super Funds)

An annual cap of $25k applies to all concessional contributions e.g. Employer contributions of $10k plus salary sacrifice amounts of $15k = cap of $25k.  (Note: not applicable to untaxed, constitutionally protected super funds like West State Super and Gold State Super, a lifetime cap applies).

• Non-concessional (after-tax) or personal contributions where tax deduction not claimed
  • Annual cap of $100k or up to 3 years of annual caps ($300k) using bring-forward rules
  • Restrictions apply depending on age and Total Superannuation Balance held
• ATO contributions if you meet certain eligibility criteria e.g. Government do-contributions, Low Income Super Tax Offset (LISTO)
• Downsizer contributions

Voluntary contributions can currently be made into super up to age 65 regardless of whether you are working or fully retired.  Once the legislation is finalised this will change to age 67 years where post age 67 you will need to meet a work test in order to make voluntary contributions into super. Voluntary contributions can include non-concessional contributions or personal concessional contributions where a tax deduction is claimed in your individual tax return.

As part of the changes in increasing the contribution rules to age 67, it is proposed that these measures will also extend to the bring-forward rules, allowing for a person with a Total Super Balance at the end of the prior financial year of:

• Less than $1,500,000 to apply a 2 year bring forward amount ($200,000); or
• Less than $1,400,000 to apply a 3 year bring forward amount $$300,000)

Once you reach age 75, you are generally ineligible to make voluntary contributions into your super fund except for downsizer contributions which relates to the sale of your family home, please refer to further information below.

Reminder on meeting the work test and the Work Test Exemption

Meeting the work Test – To meet the work test you must have been gainfully employed, that is employed or self-employed for gain or reward, for a minimum of 40 hours within 30 consecutive days during the financial year that you wish to make a voluntary contribution to your fund.

Since 1 July 2019, the rules have been tweaked to allow for a “work test exemption” for those currently over 65 to make additional super contributions.  To meet or use the Work Test Exemption, you must satisfy the following conditions:

• Have satisfied the work test in the previous financial year;
• Have a total combined super balance with all your super providers of less than $300,000 at the end of the previous financial year;
• You haven’t been and don’t intend to be, gainfully employed for at least 40 hours within 30 consecutive days in the financial that the contributions are made; and
• Not have already used the work test exemption in a previous financial year.

The work test exemption applies to voluntary contributions, so it can apply for both concessional and non-concessional contributions. Furthermore, not all contributions have to be made at once — they can be made over the course of the financial year.

Once the work test exemption has been used, it cannot be used in a subsequent financial year. However, you may be able to use it the following year if you still qualify.

Another change to the work test, which has yet to be legislated, is the extension of the work test by two years — that is, removing the work test for voluntary contributions for people aged 65 and 66. It is likely that this change will be legislated in time to come into effect on 1 July 2020.

The proposal also allows super fund members aged 65 and 66 to use the bring-forward rules to make non-concessional contributions of up to $300,000 and extends the time frame for the receipt of spouse contributions to age 75.

Downsizer contributions

The pre-retirement years are often a time when people decide to downsize from their primary residence. You may wish to consider the “downsizer contribution to super” initiative. This allows those who are eligible to make a one-off, non-concessional contribution to their superannuation fund, of up to $300,000 per person, or $600,000 per couple, from the sale of the family home.

You can make this downsizer contribution regardless of your work status and super balance.  You must be age 65 or more when you make the contribution, there is no maximum age limit and there is no requirement to buy a new home after the family home is sold. 

The downsizer contribution is a tax-free contribution into super.  There is no tax deduction applicable to the contribution. 

There are a number of other criteria as summarised below:

• The contract for sale must be exchanged on or after 1 July 2018
• As mentioned above, you must be 65 or more when you make the contribution
• The property that is sold needs to have been your or your spouse’s main place of residence at some point in time
• You or your spouse need to have owned the home for at least 10 years
• The property must be in Australia and excludes caravans, mobile homes and houseboats
• There is an ATO form to complete and the contribution needs to be made within 90 days of settlement

Please be aware that there aren’t any special Centrelink means test exemptions that apply to the downsizing contribution, please seek advice if this will impact you.   

Indexation of Transfer balance cap

Whilst the ATO has stated that the $1.6 million transfer balance cap will be indexed periodically in $100,000 increments in line with CPI, it has not been raised since its introduction on 1 July 2017.  It has now been confirmed that it will not increase on 1 July 2020, it is therefore almost guaranteed that the cap will be increased from 1 July 2021.

Please do not hesitate to contact our Superannuation Manager Helen Cooper should you have any queries regarding the above information.

Any information provided in this article is general in nature and does not take into account your personal objectives, situation or needs. The information is objectively ascertainable and was not intended to imply any recommendation or opinion about a financial product. This does not constitute financial produce advice under the Corporations Act 2001.