How the proposed work test changes could change your retirement

As part of this year’s Federal Budget announcement, the government signalled that it would repeal the work test for those aged 67 to 74.

What does that mean?

Currently, individuals aged 67 to 74 years can only make voluntary contributions (both concessional and non-concessional) to their superannuation, or receive contributions from their spouse, if they are working at least 40 hours over a 30-day period in the relevant financial year.

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The government explained that it was making the change because retirees who were aged 70 today potentially had 20 years of more in the workforce before the introduction of compulsory superannuation in 1992.

The government explained that changing the work test rules would allow retirees who had not had the benefit of compulsory superannuation throughout their working lives to get more out of the superannuation system, while also recognising that many of these retirees had accumulated savings outside of superannuation.

The measure, if it is successfully passed through Parliament, will mean that from 1 July 2022 individuals aged 67 to 74 (inclusive) will be allowed to make or receive non-concessional or salary sacrifice superannuation contributions without meeting the work test, subject to existing contribution caps.

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This will include contributions made under the bring-forward rule, subject to meeting the relevant eligibility criteria.

Individuals aged 67 to 74 will still have to meet the work test to make personal deductible contributions.

The government said that removing the requirement to meet the work test when making non-concessional or salary sacrifice contributions will simplify the rules governing superannuation contributions and will increase flexibility for older Australians to save for their retirement through superannuation.

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The $1.7 million cap on lifetime superannuation contributions will continue to apply and the annual concessional and non-concessional caps will also continue to apply.

The government expects the repeal of the work test to cost $30m over the forward estimates, and a further $3.7 million to implement.

Will you make use of this change when it comes into effect next financial year? Why not share your thoughts in the comments section below?

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Written by Ben