Superannuation

Work test and the exemption for recent retirees

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One of the most significant measures announced in the May 2021 federal budget was the proposed exemption from the work test. How does the work test apply now, and what is expected to change?

Currently, voluntary contributions to superannuation from the age of 67 generally require an individual to be working during the financial year they choose to contribute. The work test, as it is known, limits voluntary contributions to those who either choose to, or are able to continue to work in their late 60s through to their early 70s.

In addition, under the existing work test exemption, recently retired clients aged between 67 and 74, may be eligible to make additional voluntary contributions to their superannuation.

The existing work test exemption commenced on 1 July 2019. Since then, individuals aged between 67 and 74 who have recently retired, have been eligible to make additional voluntary contributions to superannuation where they meet certain eligibility criteria around their previous year of work and their total superannuation balance. (For those age 65-74, the 'work test exemption' also applied during 2019/20.)

This opportunity has allowed advisers to tackle those tricky situations where an individual may have previously just missed out on making a final contribution; or sought advice when they had already ceased working.

Proposed further amendments

Retirees who are aged 70 today potentially only received around 20 years or so of compulsory superannuation guarantee payments during their working lives. In light of this, the federal government has announced that it proposes to amend the work test rules to assist retirees who may not have had the full benefit of compulsory superannuation contributions throughout their working lives.

Should the amendment go ahead, from 1 July 2022, individuals aged 67 to 74 will no longer be required to meet the work test when making, or receiving, non-concessional superannuation contributions or salary sacrificed contributions.

Personal deductible contributions will still be subject to meeting the work test, and all existing contribution caps will also continue to apply.