Superannuation bring-forward rule

Superannuation bring-forward rule

Superannuation is a great savings vehicle to get ready for retirement, but it is filled with rules, limits, legal jargon, and that keeps changing from year to year.

Every time we have a change of our government we experience what is labelled as “improvement of our superannuation system” but all that happens, it introduces more and more confusion and complexity.

As of 30 September 2021, total superannuation assets in Australia amounted to $3.4 trillion. Within the period of 12 months, the value of superannuation assets increased by 17.5%. That is $505 billion in one year. Our total superannuation assets make Australia the 4th largest holder of pension fund assets in the world.

With that much money involved, superannuation is one of the biggest political battle grounds to win your vote. And this is the bottom-line reason, why we have all those ongoing changes being constantly thrown at us. And that is not going to change anytime soon.

Having said that, every so often, a positive change is being introduced and if you are in the age bracket that the change applies to, you better pay attention, because soon enough this positive change might be taken away with by a new government.

And today’s topic is exactly a great example of such positive change. I want to introduce to you superannuation bring-forward arrangements

“Take time to deliberate; but when the time for action arrives, stop thinking and go in.”
Napoleon Bonaparte

And that’s exactly how I feel about those superannuation opportunities, and in a minute you will know why.

 1. What are bring-forward contributions?

Bring-forward contributions are non-concessional contributions, so contributions for which you do not claim tax-deduction that you bring-forward from future years. So this is like pre-paying, or paying in advance future years of your super non-concessional contributions.

Please don’t mix them with carry-forward contributions, which work in the opposite direction, payment of un-used contributions from past years.

2. Background

Now, I want very quickly show you the history of this type of contribution to understand why I say: Take the opportunity while it is available.

Under the bring-forward rules, providing that you have not triggered this rule yet, you are allowed to bring-forward 3 years’ worth of your non-concessional contributions.

The top line is listing the financial years and below the maximum allowable limit of non-concessional contribution per each financial year from 2014 until 2024.

As you can see if you were preparing for retirement back in 2014, you were able to prepay up to $540,000 being 3 years’ worth of $180,000 per financial year.

But in 2015, government woke up thinking, this is too much of a good thing, people will start selling all their assets and move it all to super, as once in pension, all of it is tax-free. We need to reduce the maximum allowable limit, which was reduced from $180,000 down to $100,000 per financial year from 2017-18 onwards.

But then in 2021 the political games started again, and the government allowed the indexation to be applied to concessional and non-concessional contributions.

Therefore, as you can see on the graph our previous $100,000 just got lifted to $110,000 per financial year.

With such huge reduction of allowed contributions, can you see now why I keep saying don’t pass this opportunity, if this is the right strategy for you.

As Tom Peters says: “If a window of opportunity appears, don’t pull down the shade”

3. Who is eligible?

This is where this seemingly straightforward strategy is becoming a big complicated, and you have to meet all the eligibility criteria before you make this contribution.

• You have to check your total superannuation balance.

To make your bring-forward contribution you need to check your total super balance on 30 June of the previous financial year.

And the total super balance (TSB) includes balances of all your superannuation accounts, rollover accounts, pension accounts. For 2021-22 financial year the TSB limit is $1.7mil.

Then depending on the TSB you can bring forward either 3 years, 2 years or just 1 year of annual cap limit.

• Age Limit

As everything with superannuation, age can be a big limitation, so it is essential you are fully aware if ou can or cannot use the bring-forward strategy.

If you are below the age of 67, you have no problem, you can make a non-concessional contribution up to the annual cap and you can also use the bring-forward strategy, providing you haven’t triggered it in prior years.

You do not need to be working in order to make this contribution.

If you are pass the age of 67, that’s where the problem starts, as you are required to meet the work test or work test exemption.

However, I have a great news for you, fresh from the press. Just now the bill passed b the Australian Parliament and awaits Royal Assent, meaning formal acceptance by the Governor-General.

Therefore, if you are 67 but under 75 you will be able to use the bring-forward contributions, obviously subject to your TSB, without having to meet the work test requirement. This will be available to you from 1st July 2022.

4. Triggering bring-forward rule

If you wish to make a non-concessional bring-forward contribution this financial year and contribute the full allowable cap, than you better check that you have not triggered a bring-forward arrangement in the previous two financial years.

You need to consider all your personal contributions made over those two years to all your super funds. Be careful if you exceeded your concessional (deductible) contributions and get advice.

When I provide any superannuation and contribution advice to clients, I always check the history of client’s contributions, as otherwise this might create a bit of a problem.

5. What to do next?

Contributions are easy, you do not advise ATO about your contributions, your super fund will automatically report your contributions to the tax office.

There are no forms to complete, you can just transfer money from your bank account to your existing super fund. If you don’t have a super fund or you wish to change your super provider, than you need to complete a full application and advice of the type of contribution you wish to make. But again it is the role of the super fund to advise ATO of your super contributions.

6. Examples

Sue

Last year Sue, who is 63 sold her investment property and had a remaining surplus funds of $280,000. She wanted to boost her super fund and contributed the full balance to her super account in 2020-21. She was eligible to do so, as she met the age limit, on 30th June 2020 her total super fund value was $390,000, therefore within the TSB limits and she checked that she had not triggered the bring-forward rules before.

This year, Sue received an inheritance of $100,000 and knowing that the annual non-concessional limit for 2021-22 is $110,000, she wants to contribute the full inheritance value to her super.

Well, Sue, you better get a full advice here. Last year Sue triggered the bring-forward rule and used up $280,000 out of $300,000 limit. Hence she only has an allowance of $20,000 left to contribute to a super fund. Unfortunately, Sue has to wait 3 years before the bring-forward arrangement is available to her again, providing of course the legislation is not changed.

Tom

Tom is 67 on 1st August 2021. He has received an inheritance of 250,000 that he would like to contribute to super and then commence a retirement income stream. Unfortunately, due to his age, he is not eligible for the bring-forward arrangement.

To contribute in 2021-22 financial year Tom would have to find a part-time job to satisfy the work-test requirement. However, courtesy of the new legislation of extending the bring-forward rule to people up to the age of 75, Tom will be eligible next year from 1st July 2022 to proceed with his non-concessional bring-forward contribution.

At that point Tom will have to check his TSB and contribution history to ensure he had not triggered bring forward arrangement in the previous 2 years.

So here we go. What do you think about that strategy and the possibility of bring-forward contribution pass the age of 67? Considering that our life expectancy is getting greater and greater, it is a very positive initiative to extend super contributions beyond just the age of 67.

If you still find this strategy complex or just simply you need combination of different strategies to be well position for commencement of your retirement or to improve it, just contact me directly to set up the time for a good conversation. I am just a phone call or email away.

Retirement is a Journey not a Destination, so be well prepared for the ride

By: Katherine Isbrandt CFP®
Money Strategist & Retirement Planner
Principal of About Retirement