More contributions and more choice are coming to superannuation from 1 July this year following a series of legislative changes.

The changes apply to super funds and self-managed super fund (SMSFs). Caps on pre-retirement contributions are increasing, while governance is being overhauled to promote transparency, minimise fees and eliminate poor performing funds.

Like everything super related, the changes are complex and involve lots of acronyms. We’ve broken down the main parts below.

Super contributions

From 1 July, most people can put more of their retirement savings into superannuation. The increases are because of the way super contributions are linked to wages and prices. Average weekly wages and general consumer prices have gone up over the last few years, so contribution caps have as well.

How much is contributed for you is going up

The superannuation guarantee, the mandatory contribution made by your employer, is increasing from 9.5 to 10 per cent. It will continue to rise half a percentage point each year until 1 July 2025, when it will reach 12 per cent.

How much you can contribute at any one point is going up

  • Concessional (pre-tax) contributions are increasing $2,500, from $25,000 to $27,500 per year.
  • Non-concessional (post-tax) contributions (NCCs) are increasing $10,000, from $100,000 to $110,000 per year.*
  • Activating the 'Bring-forward arrangement' allows contributions of up to three years' worth of NCCs in a single year. That is increasing alongside the NCC from $300,000 to $330,000.**

Keep in mind: The three year bring forward maximum contribution is based on the non-concessional contributions cap at the time the three year bring forward is triggered. Triggering it before July 1 will exclude you from accessing the increased caps.

Those with balances below $500,000 should keep in mind they can carry forward unused concessional contributions from the previous five years, but only as far back as 2018, to make additional concessional contributions, says Liam Shorte, a specialist SMSF adviser at Verante Financial Planning.

"If someone has a balance of less than $500,000 on 1 July and they’re going to incur a capital gain in that year," he says, "they should see if they have any carry forward concession contribution caps left from previous years.

“That will help them offset a large amount of their capital gain.”

How much you can contribute over your lifetime is going up

How much you can add to your super with NCCs is limited by your total super balance (TSB). After your super balance exceeds the TSB, no more NCCs can be made.***

The TSB cap is increasing from $1.6 million to $1.7 million.

How much you can transfer from super to retirement is going up

The amount you can transfer from your accumulation phase superannuation account to a retirement phase pension – the transfer balance cap (TBC) - is going up, but not for everyone. Investment returns in the pension phase are generally tax free, so a cap of $1.6 million was introduced in 1 July 2017.****

From 1 July this cap will increase to $1.7 million.

Keep in mind: The increases come with a series of caveats. While the TBC is increasing, it isn't doing so uniformly.

If you had a transfer balance account of $1.6 million any time since 1 July 2017, you won't get the $100,000 increase. Those with transfer balance accounts below that will get a portion of the increase. Those who have yet to start a retirement phase income stream will get the full increase.

Those whose balances are already near the limit should seek advice before making contributions, to avoid going over the cap, says Shorte.

“People with more than one fund, an SMSF or an industry fund, need to know that all balances are included in the transfer balance cap,” he says.

"More than likely you won't have access to the full limit of $1.7 million, only a portion of that $100,000.

“The main problem is that the information on the ATO service on MyGov may not be correct. If you have multiple funds you should always check with your adviser first."

The bottom line is more contributions can be made. Chat with your financial planner about how much of the increase you will be eligible for. For a detailed case study, check out this piece by Julie Steed.

Summary of contribution changes

Source: Australian Tax Office

* Concessional contributions are taxed at 15 per cent upon entry. Non-concessional contributions are not taxed upon entry, although you will have already paid tax on the sum.

** Eligibility depends on age and total super balance on 30 June of the previous financial year.

*** Contributions over the cap will be taxed at 47 per cent.

**** Investment returns in the accumulation phase are taxed at 15 per cent.

Governance

Changes are also coming to the way super funds and SMSFs operate because of the government’s ‘Your Future, Your Super’ legislative package.

SMSFs will need to use SuperStream

From 1 October this year, SMSFs will need to use SuperStream to roll over super to or from their funds. SuperStream is a standard used across the super industry to send money and information in a consistent way. To use SuperStream, the ATO recommends having:

  • an electronic service address (ESA) providing rollover SuperStream services.
  • an Australian Business Number.
  • up-to-date details recorded with the ATO, including your SMSF's unique bank account for superannuation payments.

Superannuation will now follow you

Many Australians have multiple superannuation accounts, one from each previous job. The government estimates there are 6 million accounts held by 4.4 million people. Duplicated fees (and insurance policies) lead to lower returns and less savings in retirement.

For 1 July, your superannuation account will follow you when you change jobs, and your new employer will pay contributions into your existing account.

Keep in mind: If your first superannuation account was a poor performing one, you may not want it to follow you. Check your super providers fees and performance.

Multiple balances and poor performing funds mean less money in retirement

Source: Treasury, Your Future Your Super, page 11.

Superannuation funds will be easier to compare

The government is rolling out a new tool, ‘YourSuper’, to compare super products on performance and fees.

Superannuation funds will be held to account for underperformance

The government will conduct annual performance tests for superannuation funds. Underperforming funds will be required to notify members and refer them to the ‘YourSuper’ comparison tool. Those that fail the test twice consecutively won't be allowed to accept new members.

Superannuation funds will be subject to more scrutiny

Superannuation funds are now be required to be more transparent with how they spend fund money, for example on advertising campaigns. Funds that are unable to justify expenditure in the best financial interest of the members will face penalties.

The package has yet to pass and these proposals are subject to change.