New financial year to bring new rules for super
As the 2019–20 financial year draws to a close, a technical expert has highlighted some of the new rules commencing for super funds for the 2020–21 financial year.
For the 2020–21 financial year, SuperConcepts executive manager SMSF technical and private wealth Graeme Colley said the two main changes are the abolition of the work test for those aged 66 and 67 years old and the extension of spouse contribution for those aged between 70 and 75 years.
Mr Colley noted that the industry is still waiting for a change in legislation that will allow access to the “bring forward” rules.
“We remain waiting with anticipation for the extension of the bring forward rule to the age of 67 years to become law when Parliament resumes in the next few months,” he said.
He also reminded SMSF professionals and their clients that the 50 per cent reduction in the minimum pension rate for account-based pensions, due to the COVID-19 pandemic, will continue to apply for the 2020–21 financial year.
Work test changes
Up until 30 June 2020, Mr Colley explained there was no need for a member to satisfy a work test for personal concessional and non-concessional contributions before reaching the age of 65.
“However, once they reached 65 years of age in the financial year, a work test of 40 hours in 30 consecutive days was required to be met at any period during that year, and prior to the contribution being accepted,” he said.
“Providing the work test is met in a financial year, personal concessional or non-concessional contributions can be accepted up to 28 days after the month in which the person reaches the age of 75. However, there are exceptions to the work test where personal contributions are made in the year after ceasing work, or for purposes of downsizer contributions.”
From 1 July 2020, it will be possible for those under the age of 67 years to make personal contributions without needing to satisfy a work test, he explained.
In the financial year a person reaches the age of 67, personal contributions can be made prior to reaching 67 years old. However, a work test must be met at any time during the financial year prior to the contribution being made.
Up until 30 June this year, it was only possible to make spouse contributions up until the age of 70 years, Mr Colley said.
Between the ages of 65 and 70 years, the spouse was required to meet the work test of 40 hours in 30 consecutive days for the year in which the contribution was made.
“However, from 1 July 2020, this has now been extended to apply to spouse contributions made between the age of 67 years, and 28 days in the month after the spouse reaches 75 years old, which puts it in line with other personal superannuation contributions,” Mr Colley said.
“The work test must be met prior to the spouse contributions being made to the fund.”
Reduction in minimum pensions for account-based pensions
In late March 2020, Mr Colley said the government amended the minimum percentage required to be paid for account-based pensions by 50 per cent.
“This meant that account-based pensions, transition to retirement pensions, and market-linked income streams would have their minimum pension percentage reduced by 50 per cent for the 2019–20 and 2020–21 financial years,” he said.
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates. Miranda has also directed SMSF Adviser's print publication for several years.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.