It’s true the rules of our superannuation system always seem to be changing and this year is no different. Just when you think you’ve got all the rules and eligibility ages sorted out, they change again.
This year is a big one for superannuation fund members, as the caps for contributions have been lifted for the first time since July 2017. That means you will be able to add more into your superannuation account, with higher limits for both the concessional and non-concessional contribution caps.
To sum it up, here are the key changes.
1. Increase in Superannuation Guarantee percentage
From 1 July 2021, the percentage rate for the Superannuation Guarantee (SG) increased from 9.5% to 10.0%. This change required employers to contribute additional money into their employees’ superannuation accounts for the higher SG percentage rate.
Under the current schedule of legislated increases, SG will rise again to 10.5% on 1 July 2022.
2. Rise in the concessional (before-tax) contribution cap
From 1 July 2021, the annual cap for concessional (before-tax) contributions rose to $27,500 from $25,000.
The higher concessional contribution cap means you can contribute more on a pre-tax basis. It may also allow you to make bigger concessional contributions in future years if you take advantage of unused concessional cap amounts from previous years to make a carry-forward contribution.
- If Total Superannuation Balance (TSB) is under $500,000 on 30 June of prior year, a member can carry forward any unused CC cap from 1 July 2018, for up to 5 years. These provisions are to facilitate ‘catch up’ contributions.
- To claim a tax deduction for a contribution, a member must lodge a s290-170 of the ITAA 1997 notice with the superannuation fund. The Trustee must acknowledge.
There may be an opportunity to review and increase any existing salary sacrifice contribution arrangements.
3. Higher non-concessional (after-tax) contributions (NCC) cap
The increase in the concessional contributions cap means the general non-concessional contributions cap also increased from 1 July 2021 to $110,000 per year, from $100,000.
If you’re eligible, you may be able to start a bring-forward arrangement. This allows you to use up to three years of non-concessional contributions caps in a single financial year (three years x $110,000 = $330,000).
- Members aged under 67 on 1 July 2021, may ‘bring forward’ two years of NCCs (i.e. 3 x annual NCC cap), subject to TSB.
- Members aged 67 or over on 1 July 2021, restricted to the annual NCC limit.
- Members with a total super balance of $1.7m or more on 30 June 2021, cannot make any NCCs in 2021/22. Also applies if the bring forward period has been triggered.
4. Increase in the Total Superannuation Balance (TSB) cap
The total limit on the amount you can contribute over your lifetime is called the Total Superannuation Balance cap and from 1 July 2021 this amount increased to $1.7 million.
Once your balance exceeds the TSB as per table below, you are unable to make any more non-concessional contributions. However, concessional contributions (before-tax) up to the annual cap can still be received.
|Total Superannuation Balance (TSB)||NCCs including bring forward available
(From 1 July 2021)
|Less than $1.48m||3 years ($330,000)|
|$1.48 – <$1.59m||2 years ($220,000)|
|$1.59 – <$1.7m||1 year ($110,000)|
Example: Trigger bring-forward arrangement
- Sandra is 53 years old and had a TSB of $1.40m as at 30 June 2021.
- She contributes $150,000 non-concessional contributions during 2021-22. That brings her TSB to $1.55m.
- These contributions trigger the bring-forward arrangement because they are more than the cap of $110,000.
- As Sandra’s TSB is between $1.48m and $1.59m, she is able to make contributions of up to $220,000 has a two-year bring-forward period (2021-22 and 2022-23 ‘brought forward’) with a cap of $220,000. Technically, Sandra can contribute an extra $70,000 ($220,000 minus $150,000) non-concessional contributions in 2022-23 without exceeding her cap.
- However, if her TSB reaches $1.59m or more on 30 June 2022, her cap for the following financial year in 2022-23 will be nil and any non-concessional contributions made in that year will be excess non-concessional contributions.
Example: Not eligible for the bring-forward arrangement
- Bernard was 67 years’ old on 1 July 2021. His non-concessional contributions cap for 2021-22 is $110,000. His TSB as at 30 June 2021 was $800,000.
- Bernard’s age makes him ineligible for the bring-forward arrangement.
5. Contribution eligibility
The government announced in the May 2021 Federal Budget its intention to abolish the work test on 1 July 2022. Under the change, retirees aged between 67 and 74 can top up their super without having to satisfy any test, provided their super is less than $1.7 million in July 2022. This change has not yet been legislated.
|Employer (mandated)||Employer (non-mandated)||Member||Spouse or other|
|*Work test required where member aged 67 or over||N/A||Yes||Yes||Yes|
*To meet the work test, member must be gainfully employed for at least 40 hours in a 30-day period in the current financial year, before they contribute.
6. Increase in the general Transfer Balance Cap (TBC) for a Retirement Phase Pension
The limit on the amount you can transfer from the accumulation phase to a retirement phase pension and start an income stream is increasing to $1.7m for anyone starting a new pension on or after 1 July 2021.
From 1 July 2017 to 30 June 2021, the general TBC was set at $1.6m. If you had a transfer balance account of $1.6 million at any time since 1 July 2017, you are not eligible for the $100,000 increase. Transfer balance accounts below the previous $1.6m cap receive a portion of the increase.
7. Superannuation Income Stream Benefits minimum withdrawal
|Age as at 1 July||
|65 – 74||5%|
|75 – 79||6%|
|80 – 84||7%|
|85 – 89||9%|
|90 – 94||11%|
|95 and over||14%|
**Prior to temporary 50% reduction due to COViD-19)
8. Temporary reduction in super pension minimum drawdowns
- The government again reduced the minimum drawdown rates by 50% for account-based pensions and similar products in the 2021–22 income year due to impact of COVID-19
- There is no maximum withdrawal limit for Account based pension.
- Maximum withdrawal for Transition to Retirement Income Stream (TRIS) is 10%
Other changes and measures are expected to commence from 1 July 2022
9. Relaxing residency requirements for SMSFs
The Government will relax residency requirements for SMSFs and small APRA funds by extending the central management and control test safe harbour from two to five years for SMSFs and removing the active member test for both SMSFs and small APRA funds.
Whilst not yet legislated, both measures are expected to commence from 1 July 2022.
First Samuel article – 17.11.21