Starting 1 July, super fund members will be able to make use of new contribution catch-up rules.
Under the new rules, fund members can carry forward concessional super contributions if their contributions in any given year fall under the $25,000 concessional contribution cap.
The contribution catch-up rule means that fund members can access unused concessional contributions from the current 2018/19 financial year and from then on.
AMP technical strategy manager John Perri says that if a fund member used up $10,000 of their $25,000 concessional cap in the year to June, under the new rule their concessional cap would increase to $40,000 for 2019/20 (the standard cap of $25,000 plus the unused cap of $15,000 from 2018/19).
They will be able to access their unused concessional contribution cap space on a rolling basis for five years. Amounts carried forward that have not been used after five years will expire.
To be eligible to make use of the catch-up provisions, a fund member must have a total superannuation balance of less than $500,000.
The Government introduced the catch-up to improve the flexibility of the super system. People with broken work patterns or irregular incomes can use the catch-up provisions to top up their super.
In last year’s Budget, when the catch-up scheme was announced, the Government said: “The annual concessional superannuation caps currently offer little flexibility for those who take time out of work, work part time or have lumpy income, and therefore have periods when they make no or limited contributions.
“Women often have interrupted work patterns or work part-time, which contributes to lower average superannuation account balances than men.
“Similarly, there is limited flexibility for those who find that they have greater disposable income later in life when some ongoing costs, such as mortgage repayments and school fees diminish
“Allowing people to carry forward unused concessional contribution cap amounts provides them with the opportunity to catch up.”
In future, fund members whose contributions exceed the cap will be able to make use any unused concessional contributions from the five previous years to avoid penalties for being in breach.
Individuals aged 65 to 74 who meet the work test will be able to use the scheme.
Super fund members thinking of using the scheme need to do a couple of things: check their total super balance to make sure it is under $500,000; and check their contributions level.