Many superannuation members are surprised to learn that Australia’s superannuation system places tight restrictions on who can make contributions after age 65.  In some instances, this knowledge can unfortunately come too late, with members over 65 being shocked to learn that they can no longer make additional super contributions to their fund after retiring.

From 1 July 2019, a 12-month exemption from the “work test” for newly retired individuals aged between 65 and 74 years with a total superannuation balance below $300,000 means many older Australians will now have an extra year in which to boost their superannuation savings.

The work test

Generally, individuals aged between 65 and 74 years must satisfy a “work test” in order to make:

• non-concessional contributions (ie. personal contributions for which the member does not claim a deduction); and
• concessional contributions above mandatory employer superannuation guarantee contributions (eg. personal contributions for which the member claims a deduction or extra salary-sacrificed employer contributions).

The work test requires that the person is “gainfully employed” for at least 40 hours in any 30-day consecutive period during the financial year in which the contributions are made. A person is “gainfully employed” if they are employed or self‑employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment.

Satisfying the test can be difficult for retirees who want to build their superannuation savings. Receiving passive income (eg. rent or dividends) and unpaid work are not considered to be “gainful employment”.

The changes

To assist recently retired members with their superannuation planning, recently passed legislation creates a new 12-month exemption from the work test for recent retirees aged between 65 and 74 years with a total superannuation balance below $300,000.

The new one-off 12-month exemption from the work test for qualifying individuals will be available from 1 July 2019. The exemption applies for 12 months following the end of the financial year in which the individual last met the work test, giving these retirees an extra year in which to boost their superannuation savings.

It’s important to note that the $300,000 balance threshold is tested on 30 June of the previous financial year. Also, the exemption is not available to members aged 75 and over. These members are subject to separate (and much more restrictive) rules about making contributions.

So, how much can a member contribute during the 12-month grace period? Fortunately, the individual may make contributions up to the usual concessional and non-concessional contributions caps for the particular year (currently $25,000 and $100,000 respectively).  Also, members who turn 65 during the year in which they utilise the work test exemption may benefit from accessing “bring forward” arrangements (still in draft form) to make non-concessional contributions of up to three times the usual annual cap.

Want to optimise your retirement planning?

The contributions rules are complex, but with the right planning and advice you can maximise your contributions into superannuation at the right time. You should also consider other measures that may be available to you, such as “downsizer” contributions (certain contributions of proceeds from the sale of your home) and “catch-up” concessional contributions (accessing unused concessional cap space from prior years).

A good financial advisor can help you build a personalised contributions strategy for your retirement plans.  Get in touch with us if you would like to find out more.