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Building superannuation for clients over 65

By Bryan Ashenden
February 21 2020
4 minute read
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Bryan Ashenden
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After a period of change and significant uncertainty for many advisers, the industry now appears to be entering a more stable environment where advisers can return to what they do best: helping people plan for their financial future and their retirement.

This is particularly true for those advising SMSF members. Indeed, recent changes in superannuation legislation have created an opportunity for those approaching retirement to give a boost to their SMSF balances.

One key opportunity that advisers will need to carefully consider with their clients is the possibility of continuing to build superannuation balances for a few years after age 65.


Many people have tended to think of turning 65 as the “hard finish” of years of planning and saving for retirement. It still remains a key point in retirement and superannuation planning, with a number of automatic triggers such as the automatic age-based condition of release to access preserved super benefits, which comes into play regardless of people’s work situation or plans.

However, changes to the work test, as well as an update on the $1.6 million super balance transfer caps, have opened a window on strategies that continue making contributions to superannuation possible. Taking best advantage of these changes will require careful planning from members and their advisers, to ensure that contribution strategies for this financial year, and next, are managed appropriately.

Work test

The work test requirements mean that anyone over age 65 must meet certain employment criteria in order to make voluntary contributions to superannuation.

The last major change to the work test was in 2004 when the test governing contributions for those under age 65 was abolished.

However, since 1 July 2019, the rules have been tweaked to allow for a “work test exemption” for those over 65 to make additional contributions, within certain situations, even if they do not meet the employment criteria.

In order to make the additional contribution, the member must:

  • Have satisfied the work test in the previous financial year.
  • Have a total super balance of less than $300,000 at the end of the previous financial year.
  • Not have already used the work test exemption in a previous financial year.

This measure has already been passed into law, so advisers with clients this financial year who have already turned 65 and are no longer working should consider it as part of their planning.

It’s also worth noting that 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.

As part of their planning, clients should be aware that once the work test exemption has been used, it cannot be used in a subsequent financial year. However, if they do qualify for it, but choose not to contribute in that particular year, they may be able to use it the following year if they 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, meaning advisers should start thinking about its impact on client strategies now.

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.

The flow-on effect of these changes will create both opportunities and challenges for advisers, both for this year and next.

Other considerations

  • Transfer balance cap – while 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, and 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, meaning it is vital to ensure that contribution strategies for this financial year are carefully planned and managed to ensure clients have the ability to maximise the potential to boost their super.
  • Downsizer contribution – the pre-retirement years are often a time when people decide to downsize from their primary residence, but not getting the right advice can have a significant impact on retirement savings. One option to consider is 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. 
  • LRBAs in retirement years – Limited recourse borrowing arrangements (LRBAs), which involve an SMSF trustee taking out a loan from a third-party lender to buy shares or property, have been subject to a number of enquiries over the years given the risk-laden nature of the arrangement. Whether or not the government decides to make amendments to existing LRBA legislation or abolish it altogether remains to be seen; however, advisers would do well to advise retirees and those approaching retirement appropriately regarding LRBAs, as the time to make back any losses is limited. The majority of LRBAs are held in the accumulation phase when fund members have income to service the debt. In the retirement phase, when capital preservation is paramount, LRBAs are less likely to be suitable as part of a fund’s investment strategy.

2020 is set to be a defining year for financial advice and all who operate in this ever-changing space. But rather than lamenting the regulatory and legislative changes, advisers need to be capitalising on what these changes mean for both their clients and their own operations. The right mindset will see them one step ahead of peers as they position their business for growth now and into the future.

Bryan Ashenden, head of financial literacy and advocacy, BT Financial Group