Paul's Insights: Growing super for longer
For many of us, 60 really is the new 50. We’re not just living longer, we also tend to work for longer. In the 1990s, less than one in 10 workers were older than 55. Today that figure is closer to one in five.
So it makes sense to create some flexibility around adding to our super past the age of 60. This is especially important as today’s 60-somethings haven’t had the benefit of employer-paid super contributions throughout their entire working lives.
At present some fairly restrictive rules apply. If you’re aged over 65, you can only make a voluntary personal super contribution if you pass a work test. That means working at least 40 hours over a 30-day period each year.
The Federal Budget is aiming to change this. From 1 July 2020, people aged 65 and 66 will be able to add to their super without having to satisfy a work test. You’ll only need to meet the work test if you’re aged 67 to 74.
Similarly, if you’re aged 65 or 66, you’ll be able to make three years’ worth of after-tax super contributions, currently limited to $100,000 annually, in a single year. This will mean being able to contribute a total of $300,000 at a time – provided you make no further similar contributions in the following two years, an option that’s currently only available to under-65s.
The Budget is also proposing greater flexibility around someone else topping up your super savings. The age limit for spousal contributions will be raised to 74, up from the current limit of age 69.
Of course, these measures are not set in stone. Not only do any Budget initiatives have to pass through parliament, they also hinge on the Morrison Government being re-elected.
Nonetheless, steps that allow older Australians to grow their super make a lot of sense. Many people are still playing catch-up with their retirement savings even well into their 60s. And this can be a time of life when people are better placed financially to make voluntary contributions.
Looking ahead, these initiatives could also be the start of aligning our super system more closely to the day when the Age Pension eligibility age rises to 67 in 2023.
Paul Clitheroe is Chairman of InvestSMART, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.
Frequently Asked Questions about this Article…
Flexibility in super contributions for those over 60 is important because many people in this age group are still catching up on their retirement savings. They haven't had the benefit of employer-paid super contributions throughout their entire working lives, so being able to contribute more as they work longer helps them build a more secure financial future.
The proposed changes for people aged 65 and 66 include allowing them to make super contributions without having to satisfy a work test. Additionally, they will be able to make three years' worth of after-tax super contributions in a single year, up to $300,000, provided they make no further similar contributions in the following two years.
Under the new proposal, the work test for super contributions will only apply to individuals aged 67 to 74. This means that people aged 65 and 66 will no longer need to meet the work test to make voluntary super contributions.
The current age limit for spousal super contributions is 69. The proposed change will raise this limit to 74, allowing more flexibility for spouses to contribute to each other's super savings.
No, the proposed changes are not guaranteed. They need to pass through parliament and depend on the Morrison Government being re-elected. However, these steps are seen as sensible measures to help older Australians grow their super.
These super contribution changes could be the start of aligning the super system more closely with the Age Pension eligibility age, which is set to rise to 67 in 2023. This alignment helps ensure that people can continue to build their retirement savings as they approach pension age.
People in their 60s might be better placed financially to make voluntary super contributions because they are often at a stage in life where they have fewer financial obligations, such as mortgages or dependent children, allowing them to focus more on boosting their retirement savings.
Paul Clitheroe is the Chairman of InvestSMART, Chairman of the Australian Government Financial Literacy Board, and chief commentator for Money Magazine. In the context of this article, he provides insights and commentary on the importance of growing super for longer and the proposed changes to super contribution rules.
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