Major changes coming into place from 1 July will give retired Australians aged between 60 and 74 far more flexibility in boosting their super, including through downsizing.
What are the changes?
From 1 July, Australians aged 60 and up will be able to place up to $300,000 into their superannuation as a result of an equity release from downsizing, even if they are not working. The current age limit for this scheme is 65.
Couples can contribute $600,000 under this measure.
Concurrently, from 1 July, the Australian Government is allowing Australians aged between 67 and 74 to make personal superannuation contributions, without meeting the work test.
Until now, Australians in this age bracket have needed to work to make these contributions.
The changes will allow someone aged between 67 and 74 to place up to $110,000 into his or her super in a single year, or make up to three years’ contributions at the one time (worth $330,000) in what is known as the ‘bring forward’ arrangement.
These contributions could be sourced from home downsizing, or from an inheritance or any other legal source (including working).
In summary, the changes mean that, from 1 July, anyone from the age of 60 to 74 will be able to use the downsizer superannuation contribution scheme alongside other personal contributions to place $630,000 into their super at the one time, without meeting a work test.
Couples will be able to contribute up to $1.26 million.
Why have the changes been introduced?
The Australian Government changes are part of a budget measure to simplify the rules for superannuation top-ups.
Up until now, there have been different top-up rules for different age bands between ages 60 and 74. The 1 July changes mean the rules will now be the same, irrespective of your age between 60 and 74.
What do the experts say?
Jonathan Philpot, a personal financial advisor partner at HLB Mann Judd, said the changes would be particularly beneficial for people who had limited superannuation savings because they had instead paid off a large mortgage.
“For those who haven’t built up a large superannuation balance during their working life, these changes will allow them - on ceasing work - to really pump up their super balance say after selling their home or receiving an inheritance,” he said.
These changes are important for those who have built up wealth in the family home, however because the level of entry into the housing market may have been so high, and because they’ve been paying high mortgage costs, really don’t have a retirement plan.
“These measures provide more flexibility for people to downsize, and if necessary move out of Sydney and release equity from the home, and put that wealth into super.”
Mr Philpot said the changes importantly reduced the pressure on people to reach their highest super balance at the age of 65, given they could now make personal contributions up to the age of 74 without meeting the work test.
“This means if you’ve built up wealth in the family home or built up wealth outside of super, you now have more flexibility to transfer this money into super,” he said.
Meanwhile, AMP Technical Manager Strategy John Perri said the age bracket between 60 and 74 was now a “sweet spot” where people could use both the downsizer superannuation incentive and the personal contributions to increase their superannuation.
“I’ve been advising in this space since the late 1980s and generally I’ve found that people in their late 60s or 70s are not really interested in meeting a work test to make additional superannuation contributions,” he said.
“A lot of people don’t want to be looking for work and some have retired from a family business.
“These changes take the work test off the table, which is a big deal.
Many people haven’t had the benefit of lifestyle compulsory super, so any opportunity for people to top-up their super, within allowable limits, is to be applauded.”
Are there any catches?
There are many issues to consider before making the above contributions, which means it is vital to see a qualified financial advisor before making the plunge.
For instance, there are a number of eligibility requirements for the downsizer superannuation contribution, including the need to have owned the home for ten years, and the home to be your principal place of residence.
In addition, contributions to your superannuation - particularly if releasing equity from your home - do have the potential to impact your eligibility for the aged pension, given the contributions may make it more difficult for you to meet the assets limit.
Importantly, the contributions referred to in this story are known as ‘non-concessional’.
This means these contributions do not benefit from the lower 15 per cent tax rate which applies to most contributions made directly by wage and salary earners (these are known as ‘concessional’).
Find out more
Learn about the different downsizing options on offer, and insider tips on making the move, in our just-released Ultimate Guide to Downsizing 2022.