Don't get caught out by the July 1 super changes: what you need to know
If you have taken a break from the workforce and aren't receiving superannuation contributions, you may lose some valuable benefits from July 1.
There are a number of new superannuation rules starting in a few weeks. Some rules will impact people taking time out of the workforce and considered inactive.
The super changes, called Protecting Your Super, were set up to stop Australians' super accounts from being eroded by insurance fees and premiums they don't need.
This is a great move for young people who were losing their valuable superannuation savings.
But there are other people who may be impacted who want to keep their insurance.
They could include mothers taking a break from the workforce, Australians employed overseas, people in part-time work who earn less than $450 per month, workers who are paid cash, people recovering from major illnesses and accidents as well as the self-employed who make irregular payments or people travelling overseas for long stretches of time.
Loss of insurance cover
If your superannuation account hasn't received any contributions or rollovers for more than 16 months, it is considered inactive. It will cut off your death and total and permanent disability (TPD) insurance cover.
But before it does, your super fund is required to inform fund members that they are at risk of having their insurance cancelled.
Fund members have the option to retain their insurance cover even if they are not making regular super contributions. But if you have moved and haven't updated your address, you will need to contact the fund.
The problem in losing your insurance cover is that you may not get the same broad cover when you reactivate it after you have lost it. You could be asked medical questions and depending on your health, lose automatic cover.
Check with your super fund before the new super rules come into effect on July 1.
Closure of inactive super accounts
Your super account could be closed automatically if you have an inactive super account with a balance of less than $6000.
The balance will be transferred to the tax office, which will then use data matching technology to combine the low balance amount with - if you have one - your active super account.
Cap on fees for low balance accounts
One of the benefits of the new changes is a new cap on the fees charged on small super accounts with a balance of $6000 or less. However the capped fee level is quite high at 3% per annum.
Switching funds without exit fees
Another good move is that you will be able to switch from one superannuation fund to another without having to pay an exit fee.
Exit fees will be banned so you don't have to pay a penalty and are free to move from a bad super fund.
No work test for contributions in the first year of retirement
New retirees aged between 65 and 74 will be able to make voluntary contributions into their super account without needing to satisfy the work test. To qualify you must have had less than $300,000 in your super account at the end of the previous financial year.
The relaxation of the work test rules only applies once and you cannot make contributions in subsequent financial years without meeting the work test.
Catch-up concessional contributions
This is the first year you can make additional catch-up concessional contributions to your super fund, allowing eligible Australians to put more into super. You do this by using your unused concessional contributions cap amounts from previous years.
To qualify for making a catch-up concessional contribution, you must have less than $500,000 on June 30 of the previous financial year. Also, you must not have used your entire $25,000 annual concessional contributions cap in the previous financial year.
Under the rules, you can carry-forward up to five years of unused concessional contributions caps for use in a later financial year, but the rolled forward amounts expire after five years.
The five-year carry-forward period started on July 1, 2018, meaning that 2019-2020 is the first year in which you can make catch-up contributions. If you are aged 65 or over, the normal work test rules apply.
Rise in age pension work bonus
If you're working and receiving the age pension you could be entitled to the Work Bonus, which excludes some of your pay from the Centrelink income test.
This bonus is increasing from $250 to $300 a fortnight, meaning you're able to keep more of your income, or work for short periods with little or no effect on your age pension.
Lifetime annuity means test change
Changes to the means test for lifetime retirement income streams or annuities come into effect from July 1, 2019.
Annuity payments are included in the age pension income test, but under the new rules only 60% of an annuity's purchase price will be included in the assets test rather than the previous situation where the full purchase price is included.
The assessment rate will reduce to 30% for people aged over 84.
Pension Loans Scheme expanded
From July 1, 2019, the eligibility criteria and withdrawal amounts for the Pension Loans Scheme (PLS) will be expanded to make the scheme available to more Australians of age pension age. Under the new eligibility rules, you must still qualify for one of the eligible pensions.
The PLS provides loans to more asset rich, cash poor pensioners who own real estate in Australia. It allows them to unlock money tied up in their own homes to help pay for day-to-day expenses through a reverse mortgage. It can help with unexpected medical bills or bridging aged care costs until the family home is sold.
The withdrawal amount per fortnight is increasing from 100% to 150% of the maximum fortnightly pension rate.
Get stories like this in our newsletters.