What a difference a year makes: why it's now easier to keep working after 65
Living off a low super account balance in retirement can be a daunting prospect.
It's one that baby boomers dread, having entered the workforce long before compulsory super was introduced. Many are far short of the $640,000 a couple are estimated to need for a comfortable retirement.
It is something the federal government is trying to address with the work test exemption for recent retirees. Announced in the 2018-19 budget, the measure comes into effect this month.
Under the old rules once you turned 65 you had to meet the work test to make super contributions. You had to work at least 40 hours in 30 consecutive days during the financial year in which contributions are made. But new retirees won't need to meet this test.
From the start of this financial year - July 1, 2019 - people aged 65-74 with a total super balance of less than $300,000 will be able to make voluntary contributions to super for one more year after they stop work despite not working.
Glen McCrea, deputy CEO and chief policy officer of the Association of Superannuation Funds of Australia (ASFA), says it's a positive measure given the median super balance for people aged 65-74 is only about $170,000.
"It benefits those people that need to catch up. The vast majority of these people wouldn't have been contributing 9.5% their entire working life. Yes, there are some people that have a lot of money in super, but the reality is a lot of people don't." (Compulsory super began in 1992.)
McCrea also points out that women retire on half the balance of men "so any measure that helps women catch up on their super is a positive initiative".
Under the one-year exemption, your total super balance will be assessed for eligibility at the beginning of the financial year after you stop work. Once eligible, there is no requirement for individuals to remain under the $300,000 balance cap for the duration of the 12-month period.
The normal annual caps continue to apply under the work test exemption: $25,000 for concessional (before tax) contributions and $100,000 for non-concessional (after-tax) contributions.
"It's basically giving you a year's grace," says McCrea. "It means people have time to get their head around what retirement might look like. They may, for example, want to sell an asset and put a portion of that into their super or contribute money from an inheritance."
He says it's essential people check the total balance of all their funds.
"You need to make sure you haven't exceeded the $300,000 so it's worth talking to your fund and/or your financial adviser to make sure these rules are something you can take advantage of."
Originally, the work test exemption did not include "bring forward" arrangements.
But when announcing the regulations, then assistant treasurer Stuart Robert said the government had decided to allow those who use the work test exemption in the year they turn 65 to access bring-forward arrangements for non-concessional contributions.
"Individuals will be able to make up to $300,000 in contributions in after-tax income, providing extra flexibility to get their affairs in order as they prepare for retirement. This change will also align the contribution rules for the work test exemption with those that apply under the work test, making the system simple to understand for members."
To enjoy a comfortable retirement, ASFA says a couple need $640,000 while a single person needs $545,000. Annual expenditure for such a lifestyle is $61,061 for a couple and $43,255 for a single.
"These types of measures that allow people to catch up are really worthwhile for all Australians as they enter retirement," says McCrea. He is also pleased that both sides of politics support a move to increase the super guarantee to 12%.
To find out how much you need, go to superguru.com.au.