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A new financial year for super

Jul 1, 2021, 13:39 PM
By Graeme Colley

Executive Manager, SMSF Technical & Private Wealth

Graeme-Colley_90x90mm
As history shows, a new financial year brings new opportunities in super and the commencement of the 2021/22 financial year is no different.  From 1 July 2021 indexation of the contribution caps, Transfer Balance Cap (TBC) and Total Super Balance 
(TSB) takes place.  Then there’s the continuation of the 50% minimum pension requirement which has been in place for the previous 2 financial years.

Indexation of Contributions

The concessional and non-concessional contributions caps have been increased from 1 July 2021 in line with the indexation of the TBC and TSB.  For concessional contributions the standard amount has been increased to $27,500 and for non-concessional contributions the standard amount has been indexed to $110,000.  



Concessional Contributions 

The increase in concessional contributions means that contributions made by an employer, salary sacrifice contributions and personal deductible contributions from 1 July 2021 will have a standard cap of $27,500 before tax penalties will apply.  The amount that can be contributed is not restricted by a person’s super balance and if the total amount in super on 30 June 2021 is less than $500,000, they may be able to bring forward any concessional contributions that were under the cap and not claimed since 1 July 2018.

For anyone who is salary sacrificing to superannuation it may be worthwhile to make adjustments to the amount being salary sacrificed so that the increase in concessional contributions to $27,500 can be made.

There is also an increase in the amount an employer is required to contribute for superannuation guarantee purposes from 1 July 2021.  The increase is from 9.5% to 10% of an employee’s ordinary time earnings.



Non-Concessional Contributions

The non-concessional contributions cap has been increased to $110,000 from 1 July 2021.  This means that anyone with a TSB of less than $1.7 million from that time can make non-concessional contributions of up to $110,000 if they are under 67 years of age.  If they are between 67 and under 75 non-concessional contributions can be made providing, they meet the work test of 40 hours in 30 consecutive days.

For anyone under 67 years old at the beginning of the financial year it is possible to access the bring forward rule of up to two years’ non-concessional contributions from the year in which a person makes more than the standard amount of $110,000.

The total non-concessional contribution that can be accessed under the bring forward rule depends on a person’s TSB on 30 June in the previous year as shown in the following table:

Total Super Balance on 30 June 2021

Set number of years for bring forward rule to apply

Amount of non-concessional contributions that can be made during the set period

Under $1.48 million

3 years

$330,000

Between $1.48 million and $1.59 million

2 years

$220,000

Between $1.59 million and $1.7 million

1 year

$110,000

More than $1.7 million

nil

$nil

As an example, if a person who is under 67 years old and has a total super balance of $1.3 million on 30 June 2021 if they make a non-concessional contribution of greater than $110,000 during the 2021/22 financial year they will trigger the bring forward rule and can then contribute up to $330,000 at any time during the 2021/22, 2022/23 or 2023/24 financial years.

A word of warning for anyone who has triggered the bring forward rules in the 2019/20 or 2020/21 financial years.  Once the bring forward rule has been triggered in a year prior to indexation there is no access to the increase until the set period has ceased.  For example, if a person triggered the bring forward rule in the 2020/21 financial year and they were entitled to access the 3 year rule they would only be entitled to three times the standard non-concessional contribution for the year in which the trigger occurred, which is $300,000 ($100,000 x 3).

 

Pensions

Don’t forget that the minimum pensions are based on the opening balance of the pension on 1 July in the financial year or pro-rated on a daily basis if it commences during the year.  In many cases the exact balance may not be known on 1 July but it is good to make a reasonable estimate to start drawing a regular amount which can be adjusted later in the year when more accurate figures become available.

The 50% reduction in the minimum pension percentage continues for the 2021/22 financial year.

 

Here are the reduced percentages:

Age

Minimum Pension percentage for account based and transition to retirement income streams for the 2019/20, 2020/21 and 2021/22 financial years

Under 65

2.0%

65-74

2.5%

75-79

3.0%

80-84

3.5%

85-89

4.5%

90-94

5.5%

95 or older

7.0%


Other Things to Consider

Apart from making contributions and adjusting pensions in superannuation it may be a good time to review the fund’s investment strategy, any death benefit nominations and have a health check of the fund’s trust deed.

A review of the fund’s investment strategy should consider whether the fund’s investments are in line with the nominated asset allocation ranges or consider any new investment classes.  This could include crypto currency or artworks and collectables.

When it comes to binding death benefit nominations, where there has been any change to a person’s circumstances an amended nomination could be considered.  This could occur where a person’s dependants have changed or a loved one who is nominated has passed away.  Also, a person may wish to change their nomination from a 3 year lapsing nomination to a non-lapsing nomination or to change the types of benefits payable to their dependants from lump sums to pensions or a combination.

Review of a trust deed always is a sticky issue but is essential if it has been in place for many years and has become worn out.  Making sure it is up to date is important so that current types of contributions can be accepted and current types of benefits can be paid by the fund.



Estate Planning

Estate planning is not a set and forget strategy. Any estate plan should be regularly reviewed so that it meets a person’s wishes and any change in the family’s situation. Even where an individual is not impacted by indexation of the caps from 1 July 2021 a couple with a combined amount in super of more than $1.7 million could have an estate plan which may require review.  This may be due to the restricted amount that can be retained in super on the death of a partner.



Start the year the right way

Before we know it, this financial year will be a fading memory and the next year will be off and running.  Why not make a new year’s financial resolution to get things in order as soon as possible so that contributions, pensions and the fund administration are in the best shape.