The major changes coming to superannuation in 2023
From the introduction of the YourSuper comparison tool and super stapling, to increases in the minimum guarantee rate, there's been a great deal of reform in the world of superannuation over the past few years.
2023 is no different, with a number of changes set to come into effect throughout the year that will impact Australian retirement savings. Here's a rundown of the changes that we're certain to see, as well as some proposed reforms that might gain traction.
Over 55s can make downsizer contributions
This first change has actually already taken effect because, as of January 1, the threshold for people wanting to make downsizer contributions into their superannuation was lowered from 60 years and over to 55 and over.
In short, the initiative allows eligible downsizers to make non-concessional contributions of up to $300,000, or $600,000 for a couple, towards their super from the sale of their family home.
"This was characterised by the former government who introduced it as a way to free up larger houses for younger families - especially in some suburbs of our major cities. And now the eligibility age has actually been lowered from 60 to 55," says chief executive of Industry Super Australia, Bernie Dean.
"So it incentivises downsizers to increase the amount of money they can put into their super without penalising them - without attracting that additional tax."
The super guarantee rate will rise to 11%
From July 1, eligible workers will start to receive higher contributions from their employers as the latest increase to the superannuation guarantee kicks in which will lift the existing rate from 10.5% up to 11% for the 2023-24 financial year.
"The increase that we are going to see from July - going from 10.5% to 11% - is going to mean an extra $16,500 at retirement for an average worker. So at an individual level it really does make a huge difference, but it is also engineered to be affordable for employers," says Dean.
The increase in July is part of a longer-term uplift in the super guarantee rate which is on track to rise from 9.5% to 12% between 2021 and 2025 - a move that Dean believes will not only be a boon for super balances come retirement.
"There is no doubt that the staged incremental increases in the super guarantee contributions for workers is a good thing, but it's also a positive at a broader economic level because the bigger our national savings pool, the more impact that it can have for members and for the economy."
The general transfer balance cap is likely to jump
The general transfer balance cap, which dictates the maximum amount that can be moved into a tax-free retirement phase account from super, is also projected to rise from its current level of $1.7 million.
As Fabian Bussoletti, technical manager at the SMSF Association, explains, the balance transfer cap is indexed based on the December Consumer Price Index rate, which means that the cap will likely rise come July 1.
"The general transfer balance cap currently sits at $1.7 million, so based on the current law, and on the CPI figures that were released last week, we would expect that it will increase to $1.9 million. That may seem like a big jump, but it needs to be put into the context of the current inflationary environment."
Any benefit from the larger cap will depend on where someone is in their transition to retirement though. For example, someone considering a move to pension phase could be better off waiting until July to make the most of the anticipated higher cap, but as Bussoletti notes, it gets more complicated for those who have partially transitioned.
"There's a middle ground where the value that you're going to get from waiting a few months will depend on how much of the cap you've used because it's all done on a proportionate basis, so not everybody will get access to that full $200,000 increase."
This complexity is actually one of the areas raised by the SMSF Association as part of its 2023-24 pre-budget submission in which it has urged the federal government to simplify transfer balance caps and other thresholds.
"Given that there are so many caps and thresholds, all with different values and all indexed in their own unique ways, there's just so much room for error and there's so much complexity that perhaps doesn't need to be there," says Bussoletti.
"So if we think about the cost of advice and simplifying that part of the world, then we're looking for opportunities to simplify the number of thresholds that we have, and perhaps increase consistency with how the thresholds and caps are all indexed."
Push for 'payday' super payments
Elsewhere on the reform front, Industry Super Australia is advocating for an increase in the payment frequency of super guarantee contributions by highlighting that around 4.2 million workers are only paid super on a quarterly basis.
While quarterly super payments are perfectly legal, Dean says they are a hangover from the time of paper-based payroll systems - systems that are no longer used by most businesses.
"When super was created there was an arrangement that enabled employers to pay quarterly on the basis that small and medium-sized businesses in particular relied on paper-based payroll systems. But over the last 30 years we all know what's happened with payment systems: they've gone online.
"Unfortunately we do have a relatively small number of employers that are continuing to pay super on a quarterly basis even though they are, almost universally, using automated payroll systems."
According to Industry Super Australia, bringing super guarantee contributions more in line with typical pay periods (e.g. each fortnight) would help crack down on underpayments which cost employees $4.7 billion each year on average.
It could also provide an additional boost to balances, with modelling conducted by Industry Super revealing that a shift from quarterly to fortnightly contributions would leave a 30-year-old worker on the median wage for their age $8000 better off by the time they retire.
"If you move away from quarterly to fortnightly payments, money is deposited into a worker's account more frequently and it is subject to the investment strategies of that particular fund," says Dean.
"And as we know, the magic of super rests with a few things: small contributions along the way, investing them to try and get the best outcome annually, and the magic of compound interest. So if you have more frequent payments, those forces come to bear a lot earlier."
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