Superannuation contribution eligibility and regulatory ‘caps’ determine the rate at which you can accumulate funds for your retirement. Over time, various provisions have varied the rate at which contributions could be made to a superannuation fund. At different times also, different caps have applied whether the contributions were concessional, or non concessional.
[For more on this aspect of superannuation, refer to our article – Superannuation Investing.]
Who Can Contribute to Superannuation?
Prior to the 2016 Budget announcement on 3 May 2016, the following provisions applied: Any adult under 65 years of age can contribute to superannuation personally or have contributions made on their behalf without the need to be employed (that is, they don’t need to pass the ‘work test’ – see description below).
Anybody aged 65 or over has to satisfy the following requirements:
Aged 65 to 74:
- can make personal contributions or receive employer contributions as normal if ‘the work test’ is satisfied (that is, you have been gainfully employed for at least 40 hours in a 30 day consecutive period in the relevant financial year).
Over age 70:
- Spouse contributions cannot be received.
- Superannuation Guarantee (SG) ceases at age 70.
Aged 75 or above:
- Mandated employer contributions such as Award/ determination/ industrial law contributions can be received.
Superannuation contribution eligibility under the 2016 Budget provisions will see a number of changes (if the Budget is approved), including:
- maximum concessional contributions allowable annually to be capped at $25,000 (but with a ‘catch up’ for under-cap contributions within a five year period);
- maximum non concessional contributions to have a lifetime cap of $500,000 (including all such contributions made since 1 July 2007 – but with no clawback for existing excesses in this regard);
- contributions will be able to be made by members up to age 75 without having to meet the above-mentioned work test.
Note: no changes have been proposed for Small Business Capital Gains Tax concessional contributions in this Budget.
Why would I invest in Super?
Superannuation should be viewed as being a structure under which to hold your retirement planning assets. Just as you can hold shares, property and cash-style investments in your own name or in a partnership, trust or company, you can hold those assets under a superannuation account (super fund).
Market movements affect super funds in the same way as they affect any investment – there is one significant difference: the taxation rules are more ‘lenient’ in relation to income derived from superannuation investments, including capital gains tax, with a flat rate of 15% tax applied – which, after offsets for various credits (including dividend imputation credits) can be further lessened.
Note: a contributions tax will apply to concessional contributions, but careful financial planning strategies can be applied with the effect that this 15% tax may also be mitigated to some extent. Under the 2016 Budget proposal there is likely to be changes in this area, extending the Budget changes of 2015 for people earning over $300,000 per year. The new level at which an additional 15% will be levied, is $250,000. At the other end, low income earners may be eligible for a tax credit (watch this space after the 2 July 2016 election).
Superannuation benefits are held under a regulated environment that provides:-
- Asset protection (from creditors and bankruptcy in normal circumstances);
- Superannuation Death Benefits for dependants (which can be enhanced through risk insurance policies held within the superannuation fund);
- Wealth protection by virtue of the limited access rules for the under-55’s.
What should I do now?
Superannuation contribution eligibility is one part of the formula. A similarly important part of managing a superannuation account, is how those contributions are invested. You should read your superannuation fund statements. Ensure that you understand them – and that you are confident the information is directed at your personal needs and goals. Question whether the investments are focused on your retirement plans. If you are currently a member under more than one fund, the above issues are all the more important.
Avoid the hype by some superannuation funds about low fee structures. The lack of planning flexibility within many of these funds, to suit the particular financial needs of you and your family may mean that cost (whilst that should always be fair and reasonable) should not be the only consideration. In fact, it is possible that use of a low-cost superannuation fund without appropriate financial advice may result in a poorer outcome than can be achieved by other fund structures used with holistic advice relevant to your circumstances.
There is a range of articles on this topic elsewhere on our website: some can be found under our Superannuation services tab.
Advice on superannuation contribution eligibility
To determine your superannuation contribution eligibility, you are invited to contact us to arrange a meeting with one of our experienced financial planners.
[This post was originally published in July 2012: it has been refreshed and updated since – most recently in May 2016.]
