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Superannuation and retirement changes

Superannuation Guarantee


1 July 2021 SG rate increase to proceed 


The superannuation guarantee (SG) rate is currently legislated to increase to 10% from 1 July 2021 and by a further 0.5% each 1 July after that until it reaches 12% from 1 July 2025. 

The government signalled last year that, in the lead up to the 2021 budget, it would review whether the increases should proceed taking into account the economic impact of COVID-19. In addition, the government has been subject to lobbying campaigns by a number of coalition backbenchers and advocacy groups to delay or scrap the scheduled increases, with some support from the Retirement Income Review.

This has created considerable uncertainty over whether the SG increases would proceed as planned.

The budget does not mention any change to the scheduled SG increases.  The SG rate will therefore increase from the current 9.5% to 10% from 1 July 2021. With the economy recovering strongly from the impact of COVID-19, the government has not announced any change to the currently legislated schedule, at least for the time being.

However, the lack of any government policy announcement on the SG rate leaves room for the government to later seek to scrap or delay the SG increases scheduled for later years.  


Federal Budget

Mercer’s Perspective


Mercer welcomes the increase in the SG to 10%, however, it is disappointing that the government has not re-affirmed its commitment to the increase to 12% by 2025. 

We believe building the SG rate to 12% over time is important to help more Australians to save enough for a dignified retirement in which they can afford to maintain a similar lifestyle to that which they enjoyed during their working careers.



Implications for super fund trustees

  • Trustees will see increased contribution flows as a result of the SG increase to 10%, which will help build greater fund asset bases and provide improved economies of scale over time.
  • Trustees can factor the increasing SG rates into their financial projections, but should be aware that the government’s position on the future SG increases above 10% remains unclear.

Implications for employers

  • Most employers will have budgeted and put plans in place to cater for the 0.5% increase from 1 July 2021 and, with the increase confirmed, can now proceed with those plans.
  • Employers planning to pass on some or all of the cost to employees will need to communicate this carefully – based on a recent Mercer survey only around 20% of employers were intending some offset in take home pay, with the majority of these being  employers with a ‘total package’ remuneration approach.
  • Employers will need to factor the continued uncertainty over further increases in the SG rate into their budgeting and wage negotiation processes.

Implications for individuals

  • With wage rises hard to come by, the SG increase will provide a welcome increase in total remuneration for some employees.
  • Where remuneration is provided on a ‘total package’ approach, the cost of the SG increase is more likely to be borne by employees, potentially resulting in a decrease in take home pay.
  • The extra 0.5% (and subsequent increases assuming they occur) will boost superannuation savings significantly for many working Australians, improving the likelihood of them achieving a comfortable retirement. 



Removing the $450 per month earnings threshold for SG


The government will remove the current $450 per month minimum earnings threshold, under which employees do not have to be paid the Superannuation Guarantee (SG) by their employer. The government expects to pass legislation in time for this measure to take effect from 1 July 2022. 


Currently, employers are not required to pay SG contributions in respect of employees who earn less than $450 in a given month. The Retirement Income Review estimated that this affects around 300,000 individuals, 63 per cent of whom are women. Those affected include employees working a limited number of hours, and those working a number of different jobs which each pay less than $450 per month. The application of the current threshold provides an incentive to employers to spread the available work amongst a greater number of employees in order to minimise superannuation costs. 


This measure will improve equity by expanding the SG coverage for cohorts with lower incomes, and ensure that all employees receive superannuation for all ordinary hours of work. 


Although the threshold was originally introduced as a means of reducing the administrative burden on employers, there seems little justification to continue this measure now that superannuation contributions are paid electronically.


Mercer’s Perspective


Mercer welcomes the removal of this threshold, which will result in improved superannuation coverage for lower income employees, particularly women. We have long regarded the current threshold as unfair, as it effectively results in lower overall pay rates for affected employees working fewer hours (or whose total hours are spread across multiple employers).



Implications for super fund trustees 

  • In due course trustees will need to update any disclosure material relating to SG obligations of employers that refers to the earnings threshold.

Implications for employers

  • Employers who currently apply the $450 threshold will need to update their payroll systems to ensure that SG contributions are calculated correctly following the removal of the threshold.
  • The proposed start date of 1 July 2022 should provide time for the SG legislation to be amended and for employers to factor this change into their budgeting process.

Implications for individuals

  • The changes will provide increased superannuation contributions for low-income individuals and those who gain their income from a number of different employers.
  • The changes remove any incentive for employers to limit hours in order to reduce superannuation costs.

More flexibility for older Australians


The 2021-22 Budget includes the following measures to give older Australians, including self-funded retirees, greater flexibility to contribute to their superannuation and access their housing wealth: 

  • Repealing the Work Test for voluntary non-concessional and salary sacrificed superannuation contributions for those aged 67 to 74.
  • Improving the Pension Loans Scheme.
  • Extending access to downsizer contributions to those aged 60 to 64.
  • Giving older Australians the choice to move out of legacy retirement pensions. 

Work Test to be scrapped for those aged 67 to 74


From 1 July 2022, individuals aged 67 to 74 will no longer need to meet the Work Test before they can make voluntary superannuation contributions – unless they want to claim a tax deduction.

Currently the Work Test requires individuals aged 67 or more to work a minimum of 40 hours over a 30 day period in a financial year in order to be eligible for voluntary contributions (both concessional and non-concessional) to super in that year. This is subject to a conditional exemption for recent retirees who satisfied the Work Test in the prior year and had total super of less than $300,000 at the prior 30 June. 

The Government has announced that, from 1 July 2022, those aged 67 to 74 will be able to make voluntary non-concessional and salary-sacrificed superannuation contributions without meeting the Work Test. However, they will still need to meet the Work Test to be eligible to claim a tax deduction for personal contributions.

This change is being made to provide greater flexibility for those in or nearing retirement to boost their superannuation savings, recognising that many retirees have accumulated savings outside super. 

The cut-off age for eligibility for the bring-forward rule for non-concessional contributions will also be increased to allow eligible people aged up to 74 to access this rule. Currently eligible individuals aged 64 or under at the start of a financial year can use the bring-forward rule to make up to three years of non-concessional contributions in that year. Legislation to increase the cut off age from 65 to 67 at the start of the financial year has stalled in Federal Parliament.  This was to align the bring-forward rule with the current age for the Work Test, which increased from 65 to 67 from 1 July 2020.   


Mercer’s Perspective


  • Mercer supports the increased flexibility for retirees aged 67 to 74 to top up their super.
  • The scrapping of the Work Test (except for eligibility for a tax deduction) will also be a very welcome simplification of super contribution rules and the associated fund administration requirements. 



Implications for super fund trustees

  • If legislated, trustees will need to update disclosure material, fact sheets and registry systems to accommodate the changes. 
  • The change should remove the very cumbersome fund administration processes required to ensure funds do not accept voluntary contributions for members aged 67 to 74 who do not meet the Work Test rules. 

Implications for employers

  • Nil  

Implications for individuals

  • The changes will allow greater flexibility in funding for retirement using superannuation, particularly for:
  • couples wanting to re-balance the proportion of their superannuation held by each
  • retirees with non-superannuation investments (particularly investment properties), who will now be able to realise those investments at an appropriate time and use the proceeds to make super contributions
  • retirees who receive an inheritance before they turn 75.


More flexibility in the Pension Loans Scheme (PLS)


From 1 July 2022, eligible participants in the PLS will be permitted to access up to 50% of the maximum annual Age Pension in one or two lump sum advances each year.  

The PLS is a voluntary, reverse mortgage type loan from the Government permitting an eligible recipient to access “top up” pension payments of up to 150% of the applicable maximum rate of Age Pension.  PLS payments accrue as a debt to the Government secured against suitable, Australian real estate with interest at a current rate of 4.5% p.a.  

For an eligible person already receiving the full-rate Age Pension, a PLS fortnightly payment of up to 50% of the Maximum Age Pension is currently available.  Under the changes announced, from 1 July 2022, that additional 50% PLS may be taken either as a supplemental fortnightly payment (as per the current rules) or in full as an advance lump sum instalment (or two instalments). The maximum PLS amount otherwise depends on a person’s age and available security for the loan.

For self-funded retirees or those receiving a part-rate Age Pension, the PLS can be used to provide or top up the fortnightly pension to a maximum of 150% of the full-rate Age Pension.  Under the changes announced, these participants will be able to access up to 50% of the full Age Pension as an advance lump sum instalment (or two instalments).  

Also from 1 July 2022, a new “No Negative Equity Guarantee” will apply to the PLS.  This means that a PLS borrower (and their estate) can never owe more than the market value of their security property – the Government’s recoverable loan under the PLS at any time will be capped to the market value of the security for the loan.  This new condition for the PLS is professed to be for consistency with private sector, reverse mortgage terms.


Mercer’s Perspective


  • Mercer supports the increased flexibility for retirees topping up their retirement income through the PLS to access annual lump sum advances of PLS payments.
  • The addition of the “No Negative Equity Guarantee” should provide greater comfort to individuals taking out the loan.



Implications for super fund trustees

  • Nil

Implications for employers

  • Nil 

Implications for individuals

  • The changes will make the PLS option more flexible for individuals when considering it as an option as part of retirement income planning.


Eligibility age for downsizer contributions reduced


The government will reduce the eligibility age to make downsizer contributions into super from 65 to 60 years of age.

The downsizer contribution allows people to make a one-off, post-tax contribution to their super of up to $300,000 per person from the proceeds of selling their home. Both members of a couple can contribute in respect of the same home, and contributions do not count towards the non-concessional contribution caps.  Downsizer contributions can be made after the sale of a person’s principal place of residence, held for a minimum of 10 years.

The measure provides older Australians with greater flexibility in the timing of downsizing their home and using some of the proceeds to fund their retirement.  This change will commence from 1 July 2022.


Mercer’s Perspective


  • Mercer supports the increased flexibility for retirees who downsize their home from age 60 to contribute more to fund their retirement.



Implications for super fund trustees

  • If legislated, trustees will need to update disclosure material, fact sheets, procedures and registry systems to accommodate downsizer contribution being made at an earlier age. 

Implications for employers

  • Nil  

Implications for individuals

  • The changes will allow greater flexibility in funding for retirement using superannuation’s concessional tax arrangements, particularly for:
  • Those who sell their home from age 60 and want to top up their superannuation balance
  • Pre-retirees who have reached their non-concessional contribution cap but wish to contribute more to their superannuation savings from the proceeds of selling their home
  • However, individuals will also need to consider the likely impact on their eligibility for the Age Pension as any increase in superannuation as a result of these contributions will count towards the Age Pension means tests. This is likely to limit those individuals who choose to make downsizer contributions to those who have no superannuation as they’ll still receive the full Age Pension after downsizing, and those who will not receive the Age Pension because they already have assets or income above the means test limits. In addition, if the member has already fully utilised their pension Transfer Balance Cap they will not be able to transfer these amounts into the retirement (tax-free earnings) phase.

Two-year commutation option for legacy pension products


The government will legislate to allow individuals to exit (fully commute) a specified range of legacy retirement pension products, together with any associated reserves, for a two-year period. The measure will have effect from the first financial year after the date of Royal Assent of the enabling legislation and it will not be compulsory for individuals to take part.

The measure will include market-linked, life-expectancy and lifetime pensions that started prior to 20 September 2007, but not flexi-pension products from any provider or defined benefit (DB) pensions in a large APRA-regulated or public sector DB scheme.

Currently, these products cannot be commuted unless it is in order to convert into another like product and limits apply to the allocation of any associated reserves without counting towards an individual’s contribution caps. 

Retirees with these products, who choose to, will be able to completely exit these products by fully commuting the product and transferring the underlying capital, including any reserves, back into a superannuation fund account in the accumulation phase. From there, they can decide to commence a new retirement product (subject to their transfer balance cap), take a lump sum benefit, or retain the funds in that account.

Any commuted reserves will not be counted towards an individual’s concessional contribution cap and will not trigger excess contributions. Instead, they will be taxed as an assessable contribution of the fund (with a 15 per cent tax rate), “recognising the prior concessional tax treatment received when the reserve was accumulated and held to pay a pension”. 

Social security and taxation treatment will not be grandfathered for any new products commenced with commuted funds. The current transfer balance cap valuation methods for the legacy product will still apply – including on commencement and for any commutation.

The government suggests that individuals who may want to take up the option to exit their legacy retirement product should consider seeking independent financial advice.


Mercer’s Perspective


  • Mercer welcomes the provision of this option to individuals who are locked into these products which in many cases prevent them from effectively using their retirement savings.



Implications for super fund trustees

  • For large funds that provide some of these pensions, such as market-linked pensions, the option may provide an opportunity to clear out, or at least reduce, the number of these legacy pensions – though of course not all remaining members may take up the option.
  • Care will be required in communicating about this option to any affected members.
  • It is unclear what additional administrative processes funds may have to undertake to accommodate this measure.

Implications for employers

  • Nil.

Implications for individuals

  • The option will provide a way out for many pensioners stuck in these legacy products that may no longer be suitable for their needs, but it will be important they obtain personal financial advice so that they can understand and evaluate the implications for them, including for tax and social security treatment under alternate retirement savings options. 


Other measures


Women’s Budget Statement


Other measures mentioned in the Women’s Budget Statement include the following superannuation measures:

  • The government will shortly introduce legislation to deliver the Improving the Visibility of Superannuation Assets in Family Law Proceedings measure, which was announced as part of the 2018 Women’s Economic Security Statement. This legislation will enable the Australian Taxation Office (ATO) and the Family Law Courts to electronically share information regarding superannuation assets during family law proceedings, with the intention of streamlining discovery of superannuation assets and enabling fairer superannuation splitting outcomes.
  • The government has confirmed it will not proceed with a measure to extend early release of superannuation to victims of family and domestic violence. 


First Home Super Savers Scheme (FHSSS) changes


The government announced two sets of measures for the FHSSS on Budget night:

  • increasing the maximum releasable amount under the scheme of specified voluntary superannuation savings from $30,000 to $50,000; and
  • minor technical amendments to provide relief for FHSSS scheme applicants who make certain release application errors or change their mind after moneys have been paid by a fund to the ATO under the scheme but before being released to the applicant.

The maximum releasable amount under the FHSS is currently $30,000 and only voluntary concessional and non-concessional contributions made from 1 July 2017 (up to an annual limit of $15,000 for the purposes of the scheme) and applicable earnings count towards that total.  The changes will increase the total releasable amount for an eligible applicant under the scheme to $50,000 from the first financial year following passage of the enabling legislation and Royal Assent.  That is expected to occur before 1 July 2022.

The technical amendments are intended to apply retrospectively from 1 July 2018 and include:

  • increased discretionary power for the ATO to amend and revoke FHSSS applications;
  • prior to the release of funds to an applicant, permitting that person to withdraw or amend an application and in the case of a withdrawn application, still permitting that person to reapply again in the future;
  • permitting the ATO to return released moneys to the applicable fund, provided the money had not been released to the applicant; and
  • clarification that scheme money returned by the ATO to a fund in these circumstances will not count to a person’s contribution caps and is treated as non-assessable exempt income of the fund.


SMSFs and SAFs – Relaxing the residency requirements for temporary absences overseas


For both SMSFs (i.e self-managed superannuation funds) and SAFs (i.e small APRA-regulated funds), the active member residency requirement will be removed.  For SMSFs, the central control and management test safe harbour for residency purposes will be extended from two to five years.  

The measure is intended to permit members of either SMSFs or SAFs to continue to contribute to their fund while temporarily overseas (including for work and/or education reasons)  – as for the treatment of normal APRA regulated fund members while temporarily working or studying overseas.  This reform is intended to operate from the first financial year after the enabling legislation is passed and Royal Assent given – expected to occur prior to 1 July 2022. 


Your Future Your Super (YFYS) measures - extra funding for APRA and Super Consumers Australia 


In anticipation of the proposed YFYS legislation becoming law, APRA is to be provided with an additional $9.6m of funding over the next four financial years to supervise and enforce the YFYS “transparency and accountability measures”.  Presumably, this will cover matters such as the overseeing super fund trustee compliance with the new annual fund performance test requirements and best financial interest duties, proposed to apply from 1 July 2021 under the (yet to be passed) YFYS Bill and draft regulations.  

Super Consumers Australia (SCA) is also to receive $1.6m in funding for its activities in supporting “stronger consumer outcomes” for members. This appears to be an interim arrangement with the government still in the process of considering the appointment of a permanent superannuation consumer advocacy body. 

The additional funding proposed for both APRA and SCA is to be partially met by increase in industry levies.



Funding for other priorities – ATO transfers to KiwiSaver; consultation on proxy voting advice; FASEA wind down


The government will provide additional resourcing to cover:

  • ATO administration of the transfer of unclaimed super directly to KiwiSaver member accounts ($11m over four years);
  • consulting and developing options to “improve the regulation of proxy advice” ($0.5m); and
  • the remaining life of the Financial Adviser Standards and Ethics Authority (FASEA) until it is wound up on 31 December 2021 ($2.5m) (with its functions to be transferred to a combination of Treasury and ASIC under pending legislation).



This content is intended to inform clients of Mercer’s views on particular issues. It is not intended to be provided to any person as a retail client and should not be relied upon or used as a substitute for professional advice specific to a client’s individual circumstances. Whilst Mercer believes the prospective information and forward looking statements made by Mercer in this report are based on reasonable grounds, they are predictive in character and may therefore be affected by inaccurate assumptions or by known or unknown risks and uncertainties. This content has been prepared by Mercer Consulting (Australia) Pty Ltd (MCAPL) ABN 55 153 168 140, Australian Financial Services Licence #411770. Any advice contained in this content is of a general nature only and does not take into account the personal needs and circumstances of any particular individual. Prior to acting on any information contained in this content you need to take into account your own financial circumstances, consider the Product Disclosure Statement for any product you are considering and seek advice from a licensed, or appropriately authorised financial adviser if you are unsure of what action to take. ‘MERCER’ is a registered trademark of Mercer (Australia) Pty Ltd ABN 32 005 315 917.

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