Current work test rules for retirees who want to contribute to super have been modified. The measure is designed to give retirees, including self-funded retirees, more control over their money in retirement.
Many retirees want to put extra money into their super but there are rules limiting the circumstances under which this can be done. The rules around putting extra money into your super as you get older are complex, and difficult to understand for members.
Before 1 July 2022, if you want to contribute to your super between the ages of 67 and 74, you need to meet something called the ‘work test’ or the work test exemption. The work test means you have to prove you are ‘gainfully employed’ (or paid for at least 40 hours of work within a 30-day period) during the financial year.
The May 2021 Budget proposed to abolish the work test for certain types of super contributions from 1 July 2022, allowing retirees to add more to their super more freely, without having to satisfy any test.
This is good news for members. Let’s see how it will work for Mary.
How Mary can boost her super with the removal of the work test
Mary is aged 69 and has been retired for several years. She sold an investment property recently and the net proceeds of $600,000 are sitting in her bank account, earning a small rate of interest. Currently Mary is unable to contribute into superannuation as she does not intend to work again and therefore would not meet the Work Test.
Mary also has $300,000 in a tax-free retirement income stream which she set up with the superannuation she saved while working. Mary would like to keep $50,000 of the cash in her bank account for short-term and emergency expenses and combine the rest of the money into her retirement income stream. This will allow Mary to benefit from the tax-free retirement income stream environment.
The removal of the work test for after-tax contributions from 1 July 2022 is good news for Mary as she can now boost her super before she reaches age 75:
- In the 2022-23 financial year, at age 69, she can contribute $330,000 of her cash into super and combine with her $300,000 existing income stream to start a new income stream with a higher balance. This takes advantage of the bring-forward rule, which allows Mary to make three years’ worth of the $110,000 maximum annual non-concessional (after-tax) contributions allowed in one financial year.
- Mary won’t be able to make any further contributions until the 2025-26 financial year, at age 72, after the bring-forward period has passed. In 2025-26, she can contribute the remaining $220,000 of her cash into super and combine with the existing income stream to start a new income stream with a higher balance.
How does this benefit Mary?
Mary is now able to fund her retirement with her income stream, by combining the benefit of the work test removal with the bring-forward rule. Despite drawing a pension income every year, Mary can have peace of mind that she has a regular income stream throughout her retirement and not run out of money.
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If you’re an Aware Super member and want to know how you could make the most of this scheme, a superannuation adviser can answer your questions. Best of all, you don’t pay extra for this simple advice service – it’s all part of your membership.