Super Contribution Exemption

Article published 18 October 2018

Super Contribution Exemption

The Federal Treasury is working on regulations that provide a one-year exemption from the work test for superannuation contributions to allow recent retirees to boost their superannuation balances.

The work test requires people between the ages of 65 and 74 to work a minimum of 40 hours during a period of 30 consecutive days to make voluntary, after-tax contributions to their superannuation.

After age 74, the rules will be unchanged. No further contributions can be made, except employer contributions.

The reason for age restrictions on super contributions is that the sole purpose of superannuation is to provide an income in retirement. The assumption clearly is that once a person turns 75 they are no longer working or, if they are, that their superannuation balance is sufficient to cover their eventual retirement.

The new regulations will allow people with superannuation balances below $300,000 to make voluntary, after-tax contributions to their superannuation for twelve months from the end of the financial year in which they last met the work test. There’s a limit of $300,000 limit to the contribution.

While this measure is unlikely to benefit many people, it could suit people who downsize upon retirement and find they have money left over from the sale of their home.

It could also benefit people who receive an inheritance or a redundancy pay-out.

It is, of course, a bit stingy to limit the exemption period to a minimum of twelve months and a maximum of 23 months and 30 days. In CPSA’s view the exemption period should be from the day a person turns 65 to the day before they turn 74.

Also, the tax benefits of this measure will prove to be limited in most cases. The operation of the Seniors and Pensioners Tax Offset will in most cases mean that it doesn’t matter whether windfall money is put into superannuation or invested outside super, unless the windfall is large. Getting good financial advice before making a decision is a wise thing to do.

CPSA has made a submission to Treasury on the new regulations.

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