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Retiring Isn’t Always The Stopping Point In Your Career, But What Happens To Super If You Keep Working After Retirement?

A number of Australians may find themselves after retiring from their 9 to 5 occupations at a bit of a loss. Some may decide that they aren’t ready to be fully retired and are looking to reenter the workforce in a new fashion. It’s a more common practice than you might think.

It is important that those who reenter the workforce after their retirement are aware of the technicalities that can be involved when it comes to contributing back to their superannuation fund.

Whether it is a result of pandemic-driven seachange, or looking towards keeping occupied, retirees re-entering into the workforce isn’t as uncommon as one might think. However, with the decision comes a lot of technicalities that can need to be taken into consideration, especially with regards to superannuation.

Generally, one contributes to their superannuation in an effort to fund their retirement. Once you reach your retirement, you may access your superannuation to live off of it as a part of a pension. However, this is usually done under the assumption that once you hit retirement age, you’re done with the workforce and are ready to live out the golden years.

So what if you hit retirement, take it, but then decide that you would prefer to return to the workforce (perhaps on a reduced basis, such as a part-timer).

In terms of superannuation contributions, those who commence work again and are under 67 can contribute back into their super fund. Those who are over the age of 67 must satisfy a ‘work test’ before they can begin contributing back into their super fund. The test involves working 40 hours within any 30-day cycle during the financial year the worker plans to contribute in. This aspect is an especially important timing issue for those engaging in part-time work with variable hours.

In the 2021-22 Federal Budget, the government announced that it planned to repeal the current work test for making super contributions for people aged between 67 and 74. This is yet to be enacted in legislation but is expected to apply from 1 July 2022.

The proposed repeal of the work test will only apply when making non-concessional (after-tax) contributions or salary sacrificed contributions.

If you wish to make a personal contribution for which you intend to claim a tax deduction, you will still be required to meet the requirements of the work test.

Returning workers can make two types of contributions: concessional and non-concessional contributions. Concessional or ‘before-tax’ contributions receive a 15% contributions tax when entering a super account.

Non-concessional (after-tax) contributions do not receive a contributions tax when entering a superfund since these contributions are already considered to be from an income that has already been taxed at some stage. Owners of small businesses may be eligible for special capital gains tax (CGT) concessions when planning for retirement.

There is also an important distinction in regards to the type of work that returning workers must perform. To contribute back into a superfund, workers must work for “gain or reward”. In other words, those looking to contribute back into their super fund cannot engage in volunteer work and must be paid some kind of salary.

This working requirement does not affect employer contributions (10 per cent of a salary) and relates to workers making additional contributions through after-tax contributions or salary sacrifice.

 

Workers can make super contributions up to the age of 74. Once workers reach the age of 75, no more voluntary super contributions can be made. This is because contributions (minus the mandatory employer contributions) must be discontinued at this date.

Returning workers who, after a few years of working, decide to exit the workforce again, will have their accumulation account built up from their most recent work. They can choose to start a new pension with their accumulation account (so they draw two separate pensions from their superfund), or they can stop their existing pension and add it to their accumulation account so that only one pension goes forward.

An individual’s circumstances dictate the decision to have one or multiple pensions. It may be worthwhile to maintain separate pensions, or simply leave the accumulation account as is and rely on the existing pension account. You can speak with us for information that may be more tailored to your situation, or discuss your options with your super provider or specialist.

If you’re someone who often finds it difficult to make large lump sum payments for goods or services, you may want to consider looking into “Buy Now Pay Later” services.

Buy now pay later essentially means that, rather than paying in a full lump sum payment for a product or services rendered, there may be an option to pay through instalments of a certain amount over a set period to make the sum of the full amount in total. This method should allow you to pay in full for the product or service without overly straining your finances – you pay back what you can, as agreed upon when you begin the buy now pay later service.

Some popular buy now pay later services include Afterpay, Zip Pay, Brightepay, and some credit card networks such as  Mastercard and Visa, can offer buy now pay later arrangements.

Though it can be a convenient, immediate solution, it may be challenging to juggle the necessary repayments with other financial commitments. It’s not always the most appropriate method for people, and you should bear in mind your situation and ability in paying back the amounts. 

Before you sign up, keep in mind: 

  • It becomes easier to overspend with buy now pay later services, so know your limits on what you can and can’t afford.
  • You will be charged fees and costs to use the service, which can add up to a princely sum in and of itself.
  • Keeping track of your payments can be tricky if you’ve signed up for multiple services.
  • It could affect your loan applications for a car or mortgage as lenders consider buy now pay later spending just as much as your credit score.
  • Late repayments can appear on your credit report, which affects your ability to borrow money in the future.
  • Layby can be a cheaper alternative to buy now pay later, with no account-keeping or late fees to consider

If you are someone who could make use of BNPL services, you may wish to:

  • Ensure that when using the BNPL service, you stick to a set limit on what you spend so that you can comfortably pay it back later. 
  • Aim only to have one BNPL account at a time to manage payments through, rather than confuse yourself with multiple payments across different providers.
  • Always budget for bills, loan payments and BNPL payments, and 
  • Rather than use your credit card for payments to your BNPL account, consider linking to your debit account instead.

If you would like assistance in planning your financial future, help in managing your budget or some friendly advice, see us for a chat about what we can do for you.

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John Briggs

Jane Noller has been my accountant for the last 15 plus years. I can testify to Jane’s professionalism and expeditious manner in dealing with the day to day issues that surrounds our business accounting.

John Briggs

Registered Building Certifier