Normally the end of the financial year brings with it a sense of dread, however, the new financial year starting on Thursday will bring about a raft of changes that could help the retirement balances of many Australians, including a pension boost for about one million recipients.
Here’s a short list of the big changes coming on 1 July and how they will affect your retirement.
Changes to the asset and income thresholds will result in a small pension increase for around one million part-rate age pensioners and carer payment recipients.
The increase to income and asset limits will take place on 1 July as part of the annual indexation measures applied to the means test.
Pensioners receiving a part rate will benefit from the increase in the free areas because the amount of income and assets allowed before their payment is affected is increasing.
The Age Pension, Disability Support Pension and Carer Payment single income free area will increase by $2 to $180 per fortnight, which will increase their payment by $1 per fortnight, and the couple combined income free area will increase by $4 to $320 per fortnight.
The number of assets a pensioner couple who own their own home can have before it affects their rate of payment will increase to $405,000 (excluding their home) up from $401,500, which will flow through to increase their payment by $10.50 per fortnight.
The disqualifying asset thresholds will also increase on 1 July, which will increase the number of Australians that may become eligible to receive a pension payment.
You can read more detail on the new payment rates and thresholds here.
While the means test indexation changes will mean that more people become eligible for the Age Pension, the age at which people become eligible for the pension will also change on 1 July.
As of Thursday, you need to be 66 years and six months old to receive the Age Pension.
The Age Pension eligibility age has been slowly increasing from 65 to 67 years, increasing by six months every two years.
The last change will come on 1 July 2023, when pension eligibility age will reach 67 years.
Read more: New downsizer change explained
From 1 July 2021, Australians will be able to put more into their super because the concessional and non-concessional contribution caps and the general transfer balance cap are set to increase due to indexation for the first time since July 2017.
The annual concessional contribution cap will increase from $25,000 to $27,500 as a result of the 1 July indexation changes.
The annual non-concessional contribution cap, for contributions that are made into your super fund after tax is paid, will also increase from $100,000 to $110,000 on 1 July.
There is also an increase in the transfer balance cap from $1.6 million to $1.7 million.
The indexation changes will also affect the defined benefit income cap for some retirees.
When the general transfer balance cap is indexed, the defined benefit income cap, which is currently $100,000 for most people, will be indexed to $106,250.
This means that investors may notice a change in the amount their fund withholds from their pension or annuity if they receive income from a capped defined benefit income stream and are 60 years old or over.
Further information on the new superannuation key rates and thresholds is available here.
Workers will also receive a super boost on 1 July, with the superannuation guarantee rising from 9.5 per cent to 10 per cent. These superannuation increases are set to continue to rise by 0.5 per cent every year until it reaches 12 per cent by 2025.
Some employees are being warned to check that their employers are not making them pay for their own superannuation increase, although in some situations it may be legal.
The government has also extended the temporary reduction in the minimum drawdown rates for superannuation until 30 June 2022, meaning there is no need to change setting on 1 July, or no change to your drawdown rates unless you request it.
The minimum drawdown amounts were halved due to the pandemic last year, a measure that was designed to protect superannuation balances from the devastating financial impact of the pandemic.
The move, which allowed pension members to withdraw less of their retirement savings and keep a greater sum invested if they wished, has been extended for another year to give retirees added flexibility.
As well as getting a superannuation boost, Australians who are still in the workforce could get more money in their pay packets as a result of 1 July tax cuts.
Stage two of the government’s personal income tax plan that apply from 1 July 2021 are:
- the upper limit of the 19 per cent personal income tax bracket was raised from $37,000 to $45,000
- the upper limit of the 32.5 per cent personal income tax bracket was raised from $90,000 to $120,000.
July will also bring a number of changes to the Medicare Benefits Schedule (MBS).
YourLifeChoices reported on the Australian Medical Association’s concerns over some of these changes earlier this month, with fears it could leave many out of pocket.
The Medicare changes include the indexation of the majority of Medicare services, while MBS items for general surgery are also changing to introduce 35 new items, amend 50 items and delete 73 items relating to laparoscopies and laparotomies, small bowel resections, abdominal wall hernia repairs, oncology and bariatric services, surgical excisions, and procedures relating to the oesophageal, stomach, liver, biliary, pancreas, spleen and lymph nodes.
Will you be better off next financial year? What change will help your retirement most? Why not share your thoughts in the comments section below?
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