Australian Superannuation Changes 2021

In this article we provide a snapshot of Australian superannuation changes which come into effect on 1 July 2021 and their implications.

Below we cover:

Super guarantee rate changes
New stapled superannuation employer obligations for new staff
Superannuation contributions caps
Transfer balance cap
Minimum superannuation drawdown

If you have any questions about superannuation implications for your small business or individual needs, please reach out to our Dream Financing’s Chartered Accountant, Jordan here.

Super Guarantee Rate Changes

What is Superannuation Guarantee?

Employers must pay eligible workers a percentage of their ordinary time earnings in order to provide for their retirement. The ATO says the Super Guarantee (SG) is the minimum amount you must pay, in order to avoid the super guarantee charge.

2021 Super Rate Increase

The general super guarantee percentage is increasing on 1 July 2021 from 9.5% of an employee’s ordinary time earnings to 10%. This is the first increase since 2014.

This 0.5% increase in the general super guarantee is the first of 5 incremental rises over the next few years. See table below. In July 2025, the rate will reach 12%.

It’s important to note that the 0.5% increase does not mean that everyone gets an automatic pay rise as it will depend on your employment agreement.

Example Scenario 1: If your employment agreement states you are paid on a ‘total remuneration’ basis, then your take home pay might be reduced by 0.5%. In this case, a greater proportion of your total remuneration will be directed to super.
Example Scenario 2: For those whose agreement specifies that you are paid a rate plus superannuation, then your take home pay will remain the same, but your super fund will benefit from the increase.

Considerations for Employers

Employers will need to ensure they understand the new superannuation requirements and ensure that they pay the correct SG amount in the new financial year to avoid the superannuation guarantee charge.

Expert tip: If your pay run is not the first day of the month, ensure the calculations are correct across the month. For example, for staff paid on 15^th of the month need to be paid the correct SG rate for June and July in their pay, not just the June rate.

Source: ATO

New stapled superannuation employer obligations for new staff

Currently when hiring new staff, an employee is provided with a Choice of Fund form to declare where they would like their superannuation directed. If not specified by the employee, the employer directs their superannuation into a default fund.

From 1 July 2021, where an employee does not identify a fund, legislation before Parliament will require the employer to link the employee to an existing superannuation fund. In other words, the employee’s superannuation fund will become ‘stapled’ to them.

An employer will not be able to set up a default fund without first requesting that the ATO identify the employee’s stapled fund. If the ATO confirms no other fund exists for the employee, contributions can then be directed to the employer’s default fund or a fund specified under a workplace determination or an enterprise agreement (if determination made before 1 January 2021).

Legislation enabling this measure is currently before the Senate.

Benefit of new stapled superannuation

As at 30 June 2020, there was $13.8 billion of lost and unclaimed superannuation in accounts across Australia. When someone has multiple funds, it often erodes their balance through unnecessary fees and often insurance.

This legislation is designed to minimise the creation of multiple superannuation accounts that reduce an employee’s retirement savings.

Superannuation Contributions Caps

Caps for both concessional contributions and non-concessional contributions are increasing from 1 July 2021.

Concessional Contributions Cap

Since 1 July 2017 concessional contributions – contributions made into your super fund before tax such as superannuation guarantee or salary packaging – have been capped at $25,000.

On 1 July 2021, this cap is increasing to $27,500.

N.B Concessional contributions are taxed at a rate of 15%.

Non-Concessional Contributions Cap

Non-concessional contributions are after tax contributions made into your super fund.

The non-concessional contributions cap has been $100,000 from 1 July 2017 to 30 June 2021.

From 1 July 2021 this cap is increasing to $110,000.

Bring forward rule

For those under the age of 65, the bring forward rule enables you to contribute 3 years’ worth of non-concessional contributions to your super in one year. This means from 1 July 2021, you will be able to contribute up to $330,000 in one year.

There are some considerations that you should be aware of:

Total superannuation balance rules will continue to apply
However, if you have utilised the bring forward rule in 2018-19 or 2019-20 financial years, then your contribution cap will not increase until the 3 year period has passed

Transfer Balance Cap

The transfer balance cap (TBC) limits how much money you can transfer into a tax-free retirement account.

The general transfer balance cap will be indexed to $1.7 million on 1 July 2021.

The cap, which began on 1 July 2017 is currently $1.6 million, and this change means all individuals will have a personal transfer balance cap between $1.6 million and $1.7million from 1 July 2021. There will not be a single cap that applies to everyone.

Your individual TBC will depend on whether your superannuation is in:

Accumulation phase before 1 July 2021. That is, you have not started taking an income stream (pension). In this situation, your cap will be the fully indexed amount of $1.7million.
Retirement or transitioning to retirement phase. If this is the case, your indexed TBC will be calculated by the ATO based on the information lodged with them.

Expert tip: If your superannuation is in retirement phase, it’s crucial to ensure that your TBC compliance obligations are up to date. And for self-managed super funds (SMSF) you need to advise any changes that may impact your TBC such as a member of your fund retiring.

Find out more on the ATO website here.

Minimum Superannuation Drawdown

In May, the Federal Government announced an extension of the temporary reduction in superannuation minimum drawdown rates for an additional year (until 30 June 2022).

The move to reduce the minimum annual payment required for a for account-based pensions and annuities, allocated pensions and annuities and market-linked pensions and annuities by 50%, aims to help assist retirees and was introduced as a result of the COVID-19 pandemic.