With the federal budget providing some changed settings for the contribution landscape such as the work test, its effects on the bring forward age and downsizer extension, other key measures in contributions are still unchanged.
In the recent Heffron budget update, Heffron senior technical specialist Annie Dawson said the only change to contribution caps is due to indexation where the concessional contributions cap for 2020–21 remains at $25,000, increasing to $27,500 from 1 July 2021.
The non-concessional contributions cap for 2020–21 also remains at $100,000 for those with total super balances of less than $1.6 million at 30 June 2020, increasing to $110,000 from 1 July 2021 for those with total super balances of less than $1.7 million at 30 June 2021.
There were no changes to the total super balance “thresholds” which many had hoped to be changed.
For example, the $300,000 limit for qualifying to make a “work test exempt” contribution, the $500,000 limit for utilising unused concessional contributions cap amounts carried forward from prior years.
This also includes the $1.4 million, $1.5 million and $1.6 million thresholds at 30 June 2020 for non-concessional contributions cap amounts under the “bring-forward rules” (changing to $1.48 million, $1.59 million and $1.7 million at 30 June 2021 as a result of indexation of contribution caps only).
“We are still waiting for Parliament to pass the change to allow those turning 66 and 67 to trigger ‘bring-forward mode’ for contributions made on or after 1 July 2020. Given their proposal to extend the bring-forward rule to include individuals aged 67 to 74 years, we may see the original announcement dropped, but hopefully, more will be known when Parliament returns this week,” Ms Dawson said.
Meanwhile, the rate of superannuation guarantee will increase as legislated to 10 per cent on 1 July 2021 (and then increase 0.5 of a percentage point each year until it reaches 12 per cent from 1 July 2025).
Ms Dawson also noted that no extension was announced to the current halving of the pension drawdown rates (for account-based pensions, transition to retirement income streams and market-linked pensions). Full drawdown rates will return from 1 July 2021.
“The general transfer balance cap remains at $1.6 million (increasing to $1.7 million on 1 July 2021),” she continued.
“It was hoped that, like the concessional contributions cap, the indexation of $100,000 would be made available to all; however, the onerous formula used to determine whether a member’s personal transfer balance cap is $1.6 million, $1.7 million or somewhere in between still applies.
“Conditions of release remain unchanged, including what constitutes ‘compassionate grounds’. The proposal to make provision for victims of domestic abuse to be eligible to withdraw up to $10,000 from their superannuation has been abandoned by the government. Similarly, no further extension for those financially impacted by COVID to access their superannuation was announced.”
Another missing feature was a review of the ‘temporary’ reduction in the minimum pension requirement.
While this was introduced to deal with uncertainties associated with the C-virus, the fact remains that low interest rates and low dividend yields are the ‘new normal’ and are expected to continue into the foreseeable future. To ensure the sustainability of SMSF pension balances, it would make sense for the temporary reduction in the MPR to be extended beyond the current year.
Sure the investment incomes may have reduced, but capital growth has barely slowed down, with many asset classes ahead of where they were pre COVID. Agree that those invested in cash or fixed interest will be impacted, but don’t really see any need to consider the concessions.
What was missed was the opportunity to remove the partial indexation of the TBC before it took it first move on 1 July 2021. This is the most knotty piece of legislation enacted in recent history and with it taking effect in a few weeks means that, if ever, common sense prevails and it is removed, the unwind, grandfathering or whatever is done to compensate, will just pile on more complexity.
Legislation such as the partial indexation provisions demonstrate that there needs to be some mechanism to ensure Treasury applies a commerciality lens when drafting legislation. There has to be a trade-off between the pure and the practical but sadly, partial indexation achieved only the purity.
Another example where the headline sounds great – the government is seen to be doing something to manage tax etc…however the reality is they shift an enormous cost burden to the private sector and, this never comes through in Treasury estimates.