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Big changes to your super in July 2021

We get it, life’s busy. But your superannuation definitely shouldn’t be something you “set and forget”. It’s your money – the product of your hard work over many years – so it pays to give it some attention. The way you care for it today can determine just how comfortable your retirement will be. 

Did you know the Australian government is making some big changes to super from 1 July? It’s a good idea to take a few minutes to get familiar with these changes. You’ll learn how they might impact you and whether you should adjust your contributions strategy.

Employers to put more money into your super

As required by law, an employer regularly contributes money into your super fund if you earn more than $450 a month. (Note the government proposes to remove this minimum threshold from July 2022). Currently, they put 9.5% of your earnings in, each pay cycle. This is known as the Superannuation Guarantee; the percentage has stayed the same since July 2014.

From July, however, the Superannuation Guarantee is scheduled to increase to 10%. This means your employer will need to put more money into your super fund each time they pay you.

Speculation remains as to whether further scheduled increases in the Superannuation Guarantee to 12% by 2025 will go ahead.

Of course, no matter what level it’s set at, there’s always the option to boost your super contributions yourself.

You super fund will follow you wherever you go

Here’s another big change that’s coming: your chosen super fund will stay with you as you switch jobs or careers. The government calls this super stapling.

Previously when you changed jobs, a new default fund was often opened in your name – depending on the industry and employer. This meant that some people had multiple active accounts on the go, causing them to lose track of their super and pay more in fees.

That issue is now being tackled. When you start a new job from 1 November 2021, your employer will pay your super into the fund from your previous job, unless you nominate a different one. They’ll get this information directly from the Australian Tax Office. 

Not sure where all your super is currently stored? Log into your myGov account to check for lost super and consider whether should you consolidate it all into one fund.

Again, being proactive about your super and staying engaged with how your funds are performing could be hugely beneficial later down the track.

Your super will be invested more transparently

You work hard to build up your super balance. Now, the government is applying new transparency requirements on super funds from July 1 so you know exactly how your money is being put to work.

When money is contributed into your account, super funds typically invest it for you in a range of asset classes – such as shares, property and bonds – based on your choice of pre-configured investment options. Super funds might reveal the process behind their investment choices, but usually don’t offer great detail.

But with new transparency measures coming into effect, all super funds have to give you more information about where they invest your money, including how those investments are in your best financial interests. You’ll be better able to judge if your super is being handled in a way that’s consistent with your personal values and financial goals.

In addition, super fund trustees will share important information with you before they hold Annual Members’ Meetings. So, you’ll be fully across anything that might affect you and your super.

Track how your super is performing

As part of the new transparency measures, super funds also need to highlight the returns achieved on your investments. From July, all MySuper funds will undergo an annual performance test based on comparison to a benchmark set by the Australian Prudential Regulation Authority (APRA). This test will eventually apply to all super funds next year.

If your fund fails that test, it must notify you of its underperformance by 1 October 2021. If it fails two consecutive annual performance tests, it will be barred from accepting new members unless it improves.

Finally, a new comparison tool for MySuper products will be introduced by the government in consultation with APRA from July 2021 so you can compare your fund against others.

To be called YourSuper, the tool will:

  • have a table of MySuper products, ranked by fees and investment returns
  • give you links to super fund websites where you can choose a MySuper product
  • show your current super accounts, prompting you to consider consolidating them if you have more than one.

Changes to super caps

Did you know that voluntary contributions made to super may be taxed at a lower rate than if that money was kept in a bank account?

The good news is that the limits on how much you can voluntarily contribute will increase from 1 July. That’s because the thresholds are being indexed for inflation by the Australian Taxation Office.

There are two types of contributions: concessional (contributions made into your super fund before tax such as salary sacrificing) and non-concessional (for after-tax contributions).

The annual concessional contribution cap increases to $27,500 (up from $25,000). Meanwhile, the annual non-concessional contribution cap increases to $110,000 (from $100,000). There’s also a bring-forward cap which increases to $330,000 (from $300,000).

If you’re under 65, you can use this arrangement to make up to three years’ worth of non-concessional contributions to super in a single financial year – essentially bringing forward the next two years of caps.

Something else that’s changed is that you can transfer more of your super into a tax-free retirement pension. The general transfer balance cap of $1.6 million is increasing to $1.7 million.

As always, chat to your financial adviser if you need more information on what option is best for you.

Extending the minimum drawdown COVID-19 measure to 30 June 2022

In March 2020 the government temporarily reduced by 50% the minimum amount that some pensioners must withdraw from their super as income, in response to combat the financial impacts of COVID-19. The aim of reducing the minimum amounts was to allow people to keep more money in their pension accounts, to help them better manage their income payments during the challenging times. 

As of 1 July 2021, the normal minimum drawdown rates were to be reinstated however, in May 2021, we learnt the government extended this COVID-19 measure to 30 June 2022 for the 2021-22 financial year.

You can read Prime Minister Scott Morrison’s media release here.

Summing up

The changes starting on 1 July amount to a significant shake-up. So, it’s an opportune time to be proactive and consider your super.

Of course, everyone’s financial situation is different. Super can be complex and changing your arrangements can involve opportunities and risks. Speaking with a financial adviser is a good way to ensure your super is working for you.

What you need to know

Any advice on this website is provided by Resolution Life Australasia Limited ABN 84 079 300 379, AFSL No. 233671 (Resolution Life), and is general advice and does not take into account your objectives, financial situation or needs. Before acting on this advice, you should consider the appropriateness of the advice having regard to your objectives, financial situation and needs, as well as the relevant product disclosure statement and/or policy document, available from Resolution Life at resolutionlife.com.au or by calling 133 731, before making a decision on whether to acquire, or continue to hold, the product.

The Target Market Determinations (TMDs) for our financial products (where applicable) can be found at Target Market Determinations (TMDs). The TMDs describe the key features and attributes of an applicable product that affect whether it is likely to be consistent with the objectives, financial situation and needs of consumers in the target market.

Resolution Life is part of the Resolution Life Group and can be contacted via contact us or by calling the phone number mentioned above.