Work test: making super contributions over 67

The Australian Government has announced it will repeal the work test for voluntary super contributions for people aged 67 and over in the 2021 Federal Budget. But, what is the work test, and when will these changes come into effect?

In Australia, by the time we turn 67 we may be eligible to receive the Age Pension, and will have reached the age where we can start accessing our superannuation. Contributing to super throughout our careers is one of the main ways we can set ourselves up to be financially secure for retirement. However, what if you plan to continue working after reaching age 67?

If you would like to continue contributing to your superannuation (above your employer’s required superannuation guarantee contributions and downsizer contributions), and are aged between 67 to 74 (inclusive), you are currently required to satisfy what is called the “work test”, to prove you are gainfully employed.

However, as part of the 2021 Federal Budget, the Australian Government has announced the work test will mostly be  scrapped for those aged between 67 and 74. Subject to existing super contribution caps, people in this age group will be able to make or get non-concessional or salary sacrifice superannuation contributions without meeting the work test once the changes come into effect.

This includes non-concessional contributions under the bring-forward rule. The work test will still apply, however, to people in this age group who are looking to access concessional personal deductible contributions. The changes are anticipated to be in effect before 1 July, 2022.

With the work test still applying at the time of writing, we spoke with Ann Pearson, Head of Wealth Product at financial advisory firm Clearview about what it is, plus how you can prove you fulfil it if required, and what the current exemption is.

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What is the work test for super?

To be eligible to make voluntary contributions to super from age 67 onwards, you must generally satisfy what is known as a work test (at the time of writing). The work test requires you to provide evidence of gainful employment, which is defined as working a minimum of 40 hours as an employee or self-employed person in 30 consecutive days during the financial year in which a contribution is made. This work can be full-time or part-time.

It’s important to note that the work must have been undertaken before the contribution can be made, but you only need to meet the test once per financial year.

The Australian Taxation Office (ATO) also says that if you were stood down from your employment due to the effects of COVID-19 but received the JobKeeper payment, it will accept that you are gainfully employed for the purposes of the work test.

What is the work test exemption?

The work test exemption was introduced from 1 July 2019 and was designed to boost the financial preparedness of people who have recently retired. The exemption allows eligible retirees aged 67 to 74 to make voluntary contributions for an additional 12 months after they stop working. The exemption can only be used once.

To qualify for the exemption, according to the ATO:

• You must have satisfied the work test in the financial year prior to making the additional voluntary contribution.
• You must have a total super balance of less than $300,000 as at 30 June in the previous financial year.

How much can you contribute using the work test and work test exemption?

If you meet the work test or work test exemption, the standard contribution caps of $100,000 per year for non-concessional (after-tax) contributions and $25,000 per year for concessional (pre-tax, such as through salary sacrifice) contributions apply. These caps will increase to $110,000 and $27,500 respectively from 1 July, 2021.

Importantly, the work test exemption can also be used to access any unused portions of your concessional caps that you have carried forward from previous years.

How to prove you meet the requirements and who to inform

Your super fund administers the work test rules, so once you’ve turned 67 it will usually request an annual written declaration stating that you have been gainfully employed for at least 40 hours in 30 consecutive days before it accepts a personal contribution from you.

Keep in mind that down the track you may also need to prove you have met the work test requirements that have applied retrospectively (for example, if requested by the ATO or your superannuation trustee) and it’s your responsibility to be able to do so.

For employees, this should be a relatively straightforward process, using payslips that clearly detail the hours you’ve worked. If you are self-employed, documented evidence of work completed, including invoices substantiating the income received and hours worked, is normally sufficient proof of meeting the work test, particularly if it’s clear you are genuinely carrying on a business.

It’s important to note that voluntary work, where no gain or reward is received, will not meet the requirements for the work test.

It’s a good idea to check with your super fund about the requirements needed before making a contribution.

Cover image source: Nestor Rizhniak/Shutterstock.com