The government has created a new opportunity for some recent retirees to make additional superannuation contributions. From 1 July 2019, a 12-month exemption from the “work test” for newly retired individuals aged between 65 and 74 years with a total superannuation balance below $300,000 means many older Australians will now have an extra year in which to boost their superannuation savings. If you wish to take advantage of this measure, you should plan carefully to manage the relevant timing issues, your contributions caps and interaction with other contributions measures that may be available to you.
Many superannuation members are surprised – and sometimes frustrated – to learn that Australia’s superannuation system places tight restrictions on who can make contributions after age 65. Generally, individuals aged between 65 and 74 years must satisfy a “work test” in order to make:
- non-concessional contributions (ie personal contributions for which the member does not claim a deduction); and
- concessional contributions above mandatory employer superannuation guarantee contributions (eg personal contributions for which the member claims a deduction or extra salary-sacrificed employer contributions).
The work test requires that the person is “gainfully employed” for at least 40 hours in any 30-day consecutive period during the financial year in which the contributions are made. A person is “gainfully employed” if they are employed or self‑employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment.
Satisfying the test can be difficult for retirees who want to build their superannuation savings. Passive income (eg rent or dividends) and unpaid work are not considered to be “gainful employment”. Frustratingly, even those engaged in paid work may not meet the work test if their work is more irregular than the “40-hours-in-30-days” rule permits.
To assist these members with their superannuation planning, the government has recently created a new 12-month exemption from the work test for recent retirees aged between 65 and 74 years with a total superannuation balance below $300,000.
This measure will be available from 1 July 2019. For qualifying individuals, the exemption applies for 12 months following the end of the financial year in which the individual last met the work test, giving these retirees an extra year in which to boost their superannuation savings.
Some important points to consider include:
- The $300,000 balance threshold is tested on 30 June of the previous financial year.
- The exemption is only available for one 12-month period in an individual’s lifetime. If a member utilises the exemption and later returns to work, they cannot utilise the exemption a second time when they subsequently retire again. However, if they did not rely on the exemption to make any contributions the first time they stopped working, they are entitled to utilise the exemption the next time they retire.
- The exemption is not available to members aged 75 and over. These members are subject to separate (and much more restrictive) rules about making contributions.
So, how much can a member contribute during the 12-month grace period? Fortunately, the individual may make contributions up to the usual concessional and non-concessional contributions caps for the particular year ($25,000 and $100,000 respectively). Also, members who turn 65 during the year in which they utilise the work test exemption may benefit from accessing “bring forward” arrangements (still in draft form) to make non-concessional contributions of up to three times the usual annual cap (currently $300,000, ie three times the $100,000 cap).
Want to optimise your retirement planning?
The contributions rules are complex, but with the right planning and advice you can maximise your contributions into superannuation at the right time. You should also consider other measures that may be available to you, such as “downsizer” contributions (certain contributions of proceeds from the sale of your home) and “catch-up” concessional contributions (accessing unused concessional cap space from prior years).