Federal Budget 2021

What this year's budget means for super and retirement

What's changing?

The 2021 Federal Budget outlines the Government’s economic forecasts along with a range of initiatives aimed at fast tracking Australia’s economic recovery following the Covid-19 pandemic, which the Government indicates has been much better than expected.

In the superannuation space the focus has been on delivering more for members, particularly women and those in part-time and casual employment.

Importantly, the Federal Government has maintained the legislated increase to the superannuation guarantee, which will increase by 0.5% to 10% on 1 July 2021. This is great news, as we know the rise in the minimum rate of super payments will help support a better retirement for millions of Australians.

So, what are the key changes to superannuation and what could they mean for you?

Key proposed changes to super

  • Removal of $450 monthly income threshold for super contributions
  • Increase in the withdrawal limit for First Home Super Saver Scheme (FHSSS)
  • Removal of super contribution ‘work test’ for those aged between 67 and 74
  • Transfer of unclaimed super to KiwiSaver accounts
  • Lower age threshold for super downsizer scheme
  • Legacy product conversions

It’s important to remember that these measures will need to be legislated before they come into effect. This also applies to the super changes announced in last year’s budget, which are still being debated in Parliament.

Proposed changes that may impact people still working


Removal of $450 monthly income threshold

The Government will remove the $450 minimum monthly income threshold, meaning all workers, regardless of how much they earn, will be entitled to receive employer super payments.

The $450 monthly threshold prevents an estimated 300,000 workers, 63% of whom are female, from receiving mandatory employer super contributions.

This is an issue AustralianSuper has advocated for on behalf of members over many years and is a very welcome step to ensure part-time workers and those with multiple jobs earning less than this amount per month, get a much-needed boost to their super savings.

Proposed start date: 1 July 2022


Higher withdrawal limit for the First Home Super Saver Scheme

The maximum withdrawal from the First Home Super Saver Scheme (FHSSS) will increase from $30,000 to $50,000.

This scheme allows people to make voluntary contributions to superannuation to save for their first home. The current caps on these contributions are $15,000 a year and $30,000 in total.

Under the proposed changes, voluntary contributions into a super fund will be allowed by a post-tax contribution or through salary sacrificing, up to a maximum of $50,000 in total. For couples, both individuals will be able to utilise their caps up to a maximum of $100,000.

This scheme relates to voluntary contributions only. First home buyers cannot withdraw any part of their compulsory super savings – that is, super contributions made on their behalf by their employer.

Proposed start date: 1 July 2022


Abolishing the work test for those aged between 67 and 74 years

The current work test requires a person to be employed for at least 40 hours in a consecutive 30-day period, during the financial year, before any super contributions can be accepted – Concessional or Non-Concessional.

Under the proposed changes, the existing work test will be abolished on 1 July 2022, however the work test will continue to apply where an application to make personal deductible contributions is made.

Existing contribution cap arrangements continue to apply.

Proposed start date: 1 July 2022


Transfer of superannuation to the KiwiSaver Scheme.

The Government will provide $11 million over four years from 2021-22 (and $1 million per year ongoing) to the Australian Taxation Office to administer the transfer of unclaimed superannuation money directly to KiwiSaver accounts (the New Zealand equivalent of Australian superannuation funds).

Proposed start date: 1 July 2021


Changes that may impact retirees

New age threshold for downsizers

The eligibility for downsizer contributions will be lowered from age 65 to 60, allowing retirees to contribute up to $300,000 to their super following the sale of their home. Couples may be eligible to contribute up to $300,000 each.

It’s important to note that proceeds from the sale of the home that are transferred to super accounts, will be included in the asset test for the Age Pension.

The principal place of residence remains exempt from the asset test.

Proposed start date: 1 July 2022


Legacy product conversions

The Government will allow individuals to exit specified legacy retirement products to transition to more flexible and contemporary retirement products.

A two-year period will be provided for conversion of market-linked, life-expectancy and lifetime pension and annuity products.

Products covered:

  • Market-linked, life-expectancy and lifetime products which were first commenced prior to 20 September 2007 from any provider, including self-managed superannuation funds (SMSFs).

Products not covered:

  • Flexi-pension products offered by any provider, and lifetime products offered by a large APRA-regulated defined benefit schemes or public sector defined benefit schemes.

Retirees with these products can choose to completely exit these by transferring their funds into a superannuation account in the accumulation phase. From there they can decide to commence a new retirement product, take a lump sum benefit, or retain the funds in that account.

Proposed start date: 1 July 2022


Improving the Pension Loan Scheme

The Pension Loan Scheme (PLS) is a voluntary non-taxable loan provided by the Government, that’s designed to help boost the retirement income of eligible age pensioners, by unlocking real estate equity. Through the PLS, pensioners currently receive regular fortnightly payments with the payments accruing as a debt secured against their property.

To increase the flexibility of the PLS, from 1 July 2022, the Government proposes introducing a No Negative Equity Guarantee for PLS loans, and allowing age pensioners access to a capped advance payment (up to 26 fortnights worth of top-up payments) in the form of a lump sum payment.

The scheme will provide immediate access to lump sum payments of around $12,385 for singles, and $18,670 for couples.

No Negative Equity Guarantee will mean that borrowers under the PLS, or their estate, will not owe more than the market value of their property, in the rare circumstances where their accrued PLS debt exceeds their property value. This brings the PLS in line with private sector reverse mortgages.

Proposed start date: 1 July 2022


Previous Budget measures scheduled to come into effect on 1 July 2021

There were a number of super measures proposed in last year’s Budget. These included measures around stapling people to their current super fund and performance testing for many funds. Although these measures are scheduled to come into effect on 1 July 2021, the legislation is still before Parliament. Further announcements are expected to come on these measures after the legislation is passed by the Federal Parliament.


New thresholds on 1 July 2021 for some existing measures

As well as the measures announced in the 2021 Federal Budget, it’s worth noting that the thresholds for a number of existing super measures will increase from 1 July 2021. This includes increases to the amounts that can be voluntarily contributed to super through either salary sacrifice or by making an after-tax contribution.

Key super rates and thresholds for 2021-22:

  • Concessional (before-tax) contributions cap to increase from $25,000 to $27,500
  • Non-concessional (after-tax) contributions cap to increase from $100,000 to $110,000
  • General transfer balance cap to increase from $1.6 million to $1.7 million

Other key announcements not relating to super

Aged care

Following the Royal Commission into Aged Care Quality and Safety, the Government has announced an additional $17.7 billion over five years for aged care. Key measures include:

  • Funding 80,000 additional Home Care Packages over the next two years
  • Mandating a minimum three hours and 20 minutes of care per day for people in residential care – with at least 40 minutes of that being with a registered nurse
  • The introduction of a new rating system to provide comparisons of Aged Care providers on performance, quality and safety
  • Increased funding for access to respite care to support carers and older Australians

Mental health

Mental health and suicide prevention receive $2.3 billion of funding in this year’s budget. Key areas of focus include:

  • $111.2 million over four years to expand digital mental health services
  • About $160 million will be spent on care for people following a suicide attempt, and more money for support services for fly-in fly-out workers
  • A commitment of $47.4 million towards screening for mental health issues among pregnant women and new mothers

Personal tax

Extension of Low and Middle income earner tax offset:

The Government has announced the extension of the Low and Middle-Income Tax Offset (LMITO). This may benefit individuals by up to $1,080 and has been extended for an additional 12 months to 30 June 2022.


Extension of business tax incentives

Temporary full expensing

The investment tax incentive announced in last year’s Budget, has been extended until 30 June 2023. Businesses with a turnover up to $5 billion will be able to deduct the full cost of any eligible asset they purchase for their business, including the cost of improvements to existing assets, until 30 June 2023.

Temporary loss carry-back provision

Companies will now be able to carry back tax losses for an additional 12 months from the 2019/20, 2020/21, 2021/22, and now 2022/23 income years to offset previously taxed profits in 2018/19 or later income years.

For further information on the Federal Budget, visit the Budget 2021-22 website.

Source: Australian Institute of Superannuation Trustees (AIST) 2021 Federal Budget summary.

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Find out more about these and other changes at budget.gov.au

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^Personal financial product advice is provided under the Australian Financial Services Licence held by a third party and not by AustralianSuper Pty Ltd. With your approval a fee may be charged if a Statement of Advice is provided.

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