Nina Kazmierczak- Partner and Principal Adviser
Sovereign Wealth Partners
With a new financial year just around the corner, the arrival of 1 July comes a few updates to superannuation caps and/or limits. Below I outline the changes most likely to impact you:
1. Superannuation Guarantee
The super guarantee, or SG for short, is a contribution made by your employer to a superannuation fund of your choice. Currently, the minimum SG is 9.5% and is tied to either your base salary or remuneration package.
This minimum is set to increase from 1 July 2021 to 10%, with the objective of reaching 12% by 2025. The SG rate has been frozen at 9.5% since 2014.
There is a cap to how much superannuation employers are required to pay. If you earn more than the maximum superannuation contribution base (MSCB) per quarter, your employer is not obligated to make SG contribution on your behalf for anything you earn above the MSCB.
For FY22, the MSCB limit will be $58,920 per quarter ($235,680 pa). Therefore, your employer is not obligated to pay more than $5,423.55 per quarter.
2.Concessional contributions (CC)
From 1 July, the concessional contribution cap will increase to $27,500.
Your cap may be higher is you have not utilised the full amount of the CC cap in earlier years (eligibility criteria apply).
3.Non-Concessional contributions (NCC)
From 1 July, the non-concessional contributions cap will increase to $110,000.
Individuals under 65 years of age may be eligible to utilise the “bring forward” provision and contribute up to 3 times the annual NCC in a single year ($330,000).
Superannuation balances greater than $1.7M are unable to make NCCs (the same applies if you utilised the full $1.6M TBC between 1 July 2017 and 30 June 2021, you are unable to make NCCs).
Please note that eligibility criteria apply, and we strongly recommend that you speak to your financial adviser.
4.Transfer Balance cap (TBC)
Introduced from July 2017, the transfer balance cap (TBC) limits the amount of superannuation an individual can use to commence a pension. From 1 July, this cap will increase to $1.7M for those commencing a pension after 1 July 2021.
However, if you commenced a pension between 1 July 2017 and 1 July 2021, and you utilised the entire $1.6M to commence your pension, your TBC will remain unchanged.
If you commenced a pension between 1 July 2017 and 1 July 2021, and you never used the full $1.6M amount, your personal transfer balance cap will be proportionately indexed. We recommend speaking to your adviser about the index implications on your personal TBC.
5.Extension to the 50% reduction to pension minimums
On 29 May 2021, Prime Minister Scott Morrison announced an extension to the temporary reduction to pension minimum drawdowns for FY22. Originally announced in March 2020 in response to the COVID-19 pandemic and designed to ease pressure on retirees to sell investment assets in a distressed economic and financial market climate, the Government reduced pension (account-based, allocated and market-linked pension) minimums by 50%.
With the increase in cap limits it may represent an opportunity to contribute more to Super or your spouse’s super balance.
Should you need advice or know someone who might benefit, Sovereign Wealth Partners can help.