Superannuation Changes from July 1, 2021

Super guarantee rate increase to 10%

On 1 July 2021, the Superannuation Guarantee (SG) rate will rise from 9.5% to 10% – the first rise since 2014. It will then steadily increase each year until it reaches 12% on 1 July 2025.

The 0.5% increase does not mean that everyone gets an automatic pay increase. This will depend on your employment agreement. For example, if your employment agreement states you are paid on a ‘total remuneration’ basis (base plus SG and any other allowances), then your take home pay might be reduced by 0.5%. That is, a greater percentage of your total remuneration will be directed to your superannuation fund.

For those paid a rate plus superannuation, your take-home pay will remain the same, but your superannuation fund will benefit from the increase. If you are used to annual increases, the 0.5% increase might simply be absorbed into your remuneration review.

Employers will need to ensure that they pay the correct SG amount in the new financial year to avoid the superannuation guarantee charge. Where employee salaries are paid at a point other than the first day of the month, ensure the calculations are correct across the month (i.e., for staff paid on the 15^th of the month, they are paid the correct SG rate for June and July in their pay and not just the June rate).

Superannuation salary packaging arrangements will also need to be reviewed – employers should ensure that the calculations are correct and the SG rate increase flows through.

Annual superannuation guarantee rate changes

	SG rate
1 July 2020 – 30 June 2021	9.5%
1 July 2021 – 30 June 2022	10%
1 July 2022 – 30 June 2023	10.5%
1 July 2023 – 30 June 2024	11%
1 July 2024 – 30 June 2025	11.5%
1 July 2025 – 30 June 2026	12%

Concessional contribution caps

From 1 July 2021, the superannuation contribution caps will increase, enabling you to contribute more to your superannuation fund (assuming you have not already reached your transfer balance cap).

The concessional contribution cap will increase from $25,000 to $27,500. Concessional contributions are contributions made into your super fund before tax, such as superannuation guarantee or salary packaging.

Non-concessional contribution caps

The non-concessional cap will increase from $100,000 to $110,000. Non-concessional contributions are after-tax contributions made into your super fund.

The bring-forward rule enables those under the age of 65 to contribute three years’ worth of non-concessional contributions to your super in one year. From 1 July 2021, you will be able to contribute up to $330,000 in one year. Total superannuation balance rules will continue to apply. However, if you have utilised the bring-forward rule in 2018-19 or 2019-20, your contribution cap will not increase until the three year period has passed.

Total super balance – contribution and bring forward available

1 July 2017 – 30 June 2021		After 1 July 2021
Total Superannuation Balance (TSB)	Contribution and bring forward available	Total Superannuation Balance (TSB)	Contribution and bring forward available
Less than $1.4m	$300,000	Less than $1.48m	$330,000
$1.4m -$1.5m	$200,000	$1.4m – $1.59m	$220,000
$1.5m – $1.6m	$100,000	$1.59m – $1.7m	$110,000
Above $1.6m	Nil	Above $1.7m	Nil

Indexation increases contribution caps and the transfer balance cap

Indexation ensures that the caps on superannuation that limit how much you can transfer into super and how much you hold in a tax-free retirement account, remain relevant by making pre-determined increases in line with inflation. To trigger indexation, the consumer price index (CPI) needed to reach 116.9. Australia reached 117.2 in December 2020, triggering increases to the contribution and transfer balance caps from 1 July 2021. The next increase will occur when a December quarter CPI reaches 123.75

Transfer balance cap – why you will have a personal cap

The transfer balance cap (TBC), as the name suggests, limits how much money you can transfer into a tax-free retirement account. From 1 July 2021, the general TBC will increase from $1.6m to $1.7m, but not everyone will benefit.

From 1 July 2021, there will not be a single cap that applies to everyone. Instead, every individual will have their own personal TBC of between $1.6 and $1.7 million, depending on their circumstances.

If your superannuation is in accumulation phase before 1 July 2021, that is, you have not started taking an income stream (pension), then your cap will be the fully indexed amount of $1.7m

However, if you have started taking an income stream – you have retired or are transitioning to retirement – then your indexed TBC will be calculated proportionately based on the highest ever balance of your account between 1 July 2017 and 30 June 2021. Therefore, the closer your account is to the $1.6m cap, the less impact indexation will have.

For anyone who reached the $1.6m cap at any time between 1 July 2017 and 30 June 2021, indexation will not apply and your cap will continue to be $1.6m. So, for example, if you are transitioning to retirement and drawing a pension, and your highest ever balance in your retirement account was $1.2m, then indexation only applies to $400,000 (the $1.6m cap less your highest very balance). In this case, your new personal TBC will be $1,625,000 after indexation.

My super is…	TBC to 30 June 2021	TBC from 1 July 2021
In accumulation phase	$1.6m	$1.7m
In the retirement phase and I reached the $1.6m cap limit between 1 July 2017 and 30 June 2021	$1.6m	$1.6m
In the retirement phase and I have never reached the $1.6m cap limit at any time between 1 July 2017 and 30 June 2021	$1.6m	$1.6m plus indexation on the amount between your highest ever balance and the $1.6m cap.

The Australian Taxation Office (ATO) will calculate your personal TBC based on the information lodged with them (this will be available from your myGov account linked to the ATO). If your superannuation is in the retirement phase, it will be crucial to ensure that your Transfer Balance Account compliance obligations are up to date. For Self-Managed Superannuation Funds (SMSFs), it is essential that you let us know about any changes that impact on your transfer balance account, for example if a member of your fund retires.

The total super balance caps to utilise the spouse contribution offset and the government co-contribution will also be lifted to $1.7m in line with indexation.

Minimum superannuation drawdown rates

The Government has announced an extension of the temporary reduction in superannuation minimum drawdown rates for a further year until 30 June 2022.

Age	Default minimum drawdown rates	2019-20, 2020-21 & 2021-22 reduced rates
Under 65	4%	2%
65-74	5%	2.5%
75-79	6%	3%
80-84	7%	3.5%
85-89	9%	4.5%
90-94	11%	5.5%
95 or more	14%	7%