In focus: Superannuation contribution changes from 1 July 2023

Several key super changes which may impact your ability to contribute to your SMSF, are set to take effect from 1 July 2022. These changes create opportunities for all SMSF members, young and old, to grow their retirement savings.

What are the changes?

1. The Transfer Balance Cap which limits the amount an individual can place into pension, as well as limits non-concessional contributions will increase from $1.7m to $1.9m.
2. Temporary reduction to super minimum drawdown requirements to end
3. The Superannuation Guarantee (SG) rate will increase to 11% p.a.

Superannuation changes in focus

1. Increase in the General Transfer Balance Cap

From 1 July 2023, the General Transfer Balance Cap (TBC) will increase from $1.7 million to $1.9 million. This change brings about two different opportunities.

Firstly, those who are looking to commence a pension for the first time after 1 July 2023 will be able to transfer up to $1.9 million into pension phase, an extra $200,000 compared to if the pension was commenced prior before 1 July 2023.

An individual who has previously commenced a pension may also receive a small indexation to their TBC if they have not previously utilised their entire cap, allowing them to transfer a greater amount into pension.

Secondly, individuals below the age of 75, who were previously locked out of making non-concessional contributions due to their total super balance (TSB) being above $1.7 million may also benefit from the increase in the General TBC as any increase in the General TBC also increases the TSB level for non-concessional contribution.

From 1 July 2023 individuals with a TSB below $1.9 million will have a non-concessional contribution cap of at least $110,000. Further to that, depending on their TSB, an individual may be able to bring forward an additional two years’ worth of non-concessional contributions.

The amount of non-concessional contribution cap an individual is able to bring-forward will be determined by that individual’s TSB on 30 June of the financial year immediately before the ‘trigger year’.

Where an individual triggers a bring-forward during the 2022-23 financial year, the amount they can bring forward is:

2. Temporary reduction to super minimum drawdown requirements to end

The temporary 50% reduction to superannuation minimum drawdown requirements for account-based pensions and similar products will no longer apply for the 2023–24 financial year.

The ATO has reminded that the 50% reduction will not apply when calculating the minimum annual payment required based on a pension balance as at 1 July 2023. The minimum drawdown requirements were temporarily reduced in response to COVID-19 for the 2019–20, 2020–21, 2021–22 and 2022–23 financial years.

Source: Changes to minimum annual payments for super income streams, ATO website, 29 May 2023, accessed 29 May 2023.

3. Increase in the Super Guarantee Rate to 11%

From 1 July 2023, the new superannuation guarantee (SG) that will apply to your business is 11%. The increased rate applies to all wages paid from 1 July 2023 onwards. If your wages are paid in arrears, pre 1 July wages which are not paid until after the end of the financial year will attract the increased SG rate.

What can you do to prepare?

Here are some of our tips on preparing for these increases:

• Ensure you review your current superannuation costs for all hourly and salaried employees
• Check your salary packaging arrangements. Are your agreements inclusive of superannuation, or is super paid on top of the agreed salary?
• For salary packages inclusive of super, you will need to check the contract’s wording to make sure you apply the changes correctly. This change may also impact annualised salary arrangements.
• Calculate your revised payroll costs from July, showing the current wages and superannuation expense compared to the new rate from July. Highlight the increased amount per month or quarter, so you know precisely what the impact will be.
• Discuss the super rate increase with your employees now. Let them know that there will be an increase of 0.5% each year from now until July 2025 when the statutory rate will reach 12% and remain there.
• Remember – short payment or late payment of super can incur hefty penalties – plan now for higher payroll expenses from July, so you don’t get caught short.

Navigating your way through the superannuation contribution rules can be very complex, especially in the lead up to a member’s retirement. If you have any questions, or if you require assistance implementing updates to your payroll regarding the changes to the superannuation guarantee, please contact us below.