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With the recent changes to superannuation announced in Wayne Swan’s Budget last week, ensuring you are making the most of your superannuation contributions is more important than ever. Analyse your super fund with YOURLifeChoices’ downloadable PDF Are you in the right fund?.
The Cooper Review of superannuation was announced in May 2009 as an initiative of the Labor Government intended to scrutinise the way superannuation works and to ‘maximise retirement incomes for Australians’. The Review was conducted in three phases – Governance, Operation and Efficiency, and Structure – and was delivered to the government, on time, on 30 June this year. Released yesterday by Financial services Minister Chris Bowen, the key recommendations include:
MySuper is a default fund for those who do not wish to compare different fund options and select the one they consider most appropriate for their individual circumstances. MySuper is designed to increase an individual’s retirement savings by up to $40,000 over the course of their working life. This is not a new fund. It will be offered as a default choice by existing funds providers, but will be, by law, exempt from commissions, thus achieving the anticipated savings. The current number of super accounts deemed “default” represents up to 80% of fund members, so this initiative is likely to affect a large majority of Australians. Defined benefit schemes are excluded from this proposal.
SuperStream is a package of administrative reforms designed to reduce ‘back office’ costs. This streamlining of the processing of super transactions will be achieved by improved technology and data handling. Estimated savings are
Consistent reporting means like with like comparisons of super products by standardised reports, called Dashboard, covering investment performance, fees, volatility and liquidity.
Another initiative is the ban on all commissions on insurance products in super.
Read all of the Cooper Review Report recommendations here
Louise Biti, StrategySteps
In particular, MySuper will accelerate the downward pressure on product fees and the move towards simplifying and better explaining the features and potential outcomes of specific products.
Nathan MacPhee, SuperRatings
MySuper should provide an effective safety net to protect uninformed or disinterested members. We are not sure, however, whether the cost savings will flow through in the short to medium term. The best solution is always for a member to educate themselves on super choice and spend at least an hour per year choosing the most appropriate fund to achieve a better retirement outcome.
YOURLifeChoices subscriber Guy, would like to know what effect withdrawing money from his wife’s superannuation would have on his Age Pension.
Q. Guy
I am a pensioner and I get Centrelink payments as single. My wife will be 60 shortly and is on Newstart doing volunteering work. We have superannuation in my wife’s name which would be available on her 60th birthday if we so wish.
With the financial crisis, we lost quite a bit of our super investment but because it was not a large amount to begin with, we have left it where it is. Unfortunately, we have a bit of maintenance to do on the house which would cost us a bit so we thought of withdrawing $10,000 from our superannuation.
What would be affected if we withdraw that amount? Will my wife will have a Newstart payment affected? Will she have to pay tax? Will I have my pension affected as well?
A. Provided by Centrelink
Without knowing all the details about your personal circumstances it is difficult to determine exactly how withdrawing this amount from your partner’s super will affect your payments. Generally speaking, lump sum withdrawals from a superannuation fund are not assessed as income. Depending on what a customer uses the withdrawn amount for, further assessment may be necessary. If the withdrawn amount is used to purchase an assessable asset, the relevant income and asset assessment will apply. For example, if the money is placed in a bank account, the account balance is an asset and is subject to deeming. But if the withdrawn amount is then spent, you should notify Centrelink of the new account balance and there should be no further assessment necessary.
A fact sheet with further details can be found by clicking YOURLifeChoices simple short cut.
I note that you say you receive the ‘single’ pension payments. I am wondering if you have advised Centrelink you have a partner? If you have a partner, your combined income is assessed under the income and assets test. It is important to advise Centrelink if you have a partner in order to avoid incurring a debt as a result of receiving the incorrect rate of payment. I suggest that you make an appointment to speak with a Centrelink Financial Information Services officer before you make any decision on withdrawing from your wife’s super. You can make an appointment by calling 13 2300.
With regards to whether your wife will pay tax on any withdrawal will depend on the proportion of tax-free and taxable components to her super. For more information on how super benefits are taxed, you should contact the ATO on 13 10 20. or you can find out more from the ATO website by clicking YOURLifeChoices simple shortcut.
One of the Federal Oppositions intended cuts to the Rudd Budget is the proposed increase in the Superannuation Guarantee Contribution (SGC) from 9% to 12% by 2020. Shadow Treasury spokesperson, Joe Hockey, delivered this and other suggested changes in a speech to the National Press Club yesterday. It was left to the Shadow finance spokesperson, Andrew Robb, to hand out the detail, which showed a projected saving of a mere $240 million dollars. Find out more.
Comment
Probably the worst idea the Federal Opposition has had for quite a while. We have a rapidly ageing population, a skills shortage, and most Australians are underfunded for their retirement years. Deliberately increasing the number of Australians who will be dependent on an age pension is total madness. Not only should a formal workplace savings scheme such as the SGC be strengthened, Australians should also be given far greater incentives to save an amount sufficient to ensure they are fully self funded. Conservative estimates show many Australians would be $250,000 further ahead in their retirement savings if the original Keating Government’s SGC increases had been adopted. There has been a 14-year stasis on this national super savings scheme – why would we further delay this critical program which benefits all?
For many women, superannuation and retirement funding is something which is, more often than not, provided by a husband. But with more women in the workforce, many the family’s main breadwinner, taking control of your superannuation can’t happen quickly enough.
Superannuation for women often follows a different pattern to those of men. Career-breaks to raise children, part-time work and less earning potential may make it difficult to accrue the necessary superannuation balance to fund your retirement. Understanding how to make the most of what you have, and how to take advantage of government initiatives, can result in a few more dollars in the retirement coffers.
Low earners, which women historically are, can boost superannuation balances by choosing the correct fund, utilising the government’s co-contribution and spousal contributions. And for those women fortunate enough to earn a substantial income, salary-sacrificing will not only boost your super balance, but can also reduce your tax liability.
The Office for Women and the Australian Tax Office have developed a brochure, Women and Superannuation – taking control of your future, aimed at assisting women’s understanding of the government’s superannuation initiatives and how different life stages can affect balances.
Click YOURLifeChoices simple shortcut to download a copy of Women and Superannuation – taking control of your future.
Currently set at 9% (and not increased during 11 years of Howard government nor first two years of Rudd Government), now set to increase 10- 12 per cent by 2019/20.
Win/lose?
YOURLifeChoices considers this reinstatement of increasing SGC to be a win – over time more working Australians will have a much more substantial retirement nest egg. But does it need to take so long and should businesses be footing the bill?
YOURLifeChoices subscriber, Denise, wants to know how a draw down from superannuation will affect her husband’s DSP?
Q. Denise
I receive a Carer’s Allowance and Carer’s Payment for my mother and my husband receives a Disability Support Pension. My husband is thinking of withdrawing his super (which is not much). Would this affect his disability pension?
A. Provided by Centrelink
Denise, it depends on how the money you withdraw is used. Lump sum withdrawals from a superannuation fund are not assessed as income for pension purposes. However, if the withdrawn amount is used to purchase an asset such as a new car, this will be assessed when determining the rate of pension. If the money is placed in a bank account, the account balance will be classed as an asset. If the withdrawn amount is spent or used to pay off your home loan there will be no affect on your pension.
It might be worthwhile making an appointment to speak with a Centrelink Financial Information Services Officer. They can help you understand your options when dealing with superannuation and show you how to maximise your overall retirement income. You can contact them on 13 2300.
YOURLifeChoices subscriber, Annie, is planning her retirement income and would like to know how salary sacrificing will affect her pension eligibility.
I am 72 years old and not retired yet but in the process of looking to organise my finances to maximise my current financial position.
If I put all of my salary per fortnight into superannuation I will have no usable income. Therefore, would I then be able to access an age pension from Centrelink?
A. Provided by Centrelink
Annie, unfortunately any amount of salary voluntarily sacrificed into superannuation is assessed as income for Centrelink purposes. In addition, for employees aged 70 and over, all employer contributions are assessed as income because the Superannuation Guarantee Component (SGC) no longer applies. This means if you or your partner are receiving Age Pension you need to let Centrelink know how much you are contributing to your super fund as it will impact on your rate of payment. More information on Age Pension eligibility as well as income and assets tests is available on the Centrelink website.
The introduction of tax-free superannuation benefits for people aged over 60 and transition to retirement income streams (TRIS) for those aged over 55 has added to the level of confusion about when and how much superannuants can access from their accumulated super. In some circumstances it has resulted in people rawing on their super prematurely or drawing more than they are legally entitled to.
In a nutshell, the implementation of taxfree benefits means that if you are aged over 60 and are drawing a super pension, you no longer have to declare these withdrawals in your personal taxation return. The TRIS provisions mean that if you are aged 55 plus, you are entitled to draw a maximum of 10 per cent of your balance each year as an income
stream. Unfortunately, it seems many erroneously believe that these changes have given those aged between 55 and 65 the green light to withdraw whatever they want from their super, irrespective of their circumstances.
To add to the confusion, some superannuants are also under the misapprehension that they can ‘borrow’ from their super. This tends to happen with people buying a home before inalising the sale of their existing home: they find they have a shortfall and decide to take from their super with the intention of paying it back later. The thinking is: the money’s mine, so why the heck not? But this thinking is wrong, wrong, wrong. You cannot borrow from your superannuation fund. To do so is a breach of the legislation governing superannuation.
Perhaps unsurprisingly, the majority of confusion around access arises among people who are members of self managed super funds (SMSFs), rather than those who are members of public offer or managed funds. If you run your own SMSF, now could be the time to bone up on the Conditions of Release (withdrawal) rules, because the penalties for illegally accessing super
are severe. They can include:
• prosecution of trustees for contravening the super law
• your SMSF being made non-complying, which has serious taxation consequences: the tax rate could be increased from 15 per cent to 46.5 per cent
• your disqualification from being a trustee of a superannuation fund, with you having to transfer your entitlements to another fund or appoint a professional trustee: either outcome could involve significant expenses
• taxing beneficiaries at their marginal rate for the amount withdrawn: this can push people into a higher tax bracket with tax at the rate of up to 46.5 per cent becoming payable
• preventing the superannuation fund from operating, including freezing its bank account.
The following very strict Conditions of Release rules spell out precisely when and in what circumstances you can gain access to your super.
1. If you are aged 55–59, you must have retired from gainful employment (see box) or have no intention of being gainfully employed again. In some cases, you will have to sign a statutory declaration to that effect. Declaring permanent retirement does not restrict you from returning to the workforce at a later stage. However, avoid declaring permanent retirement, cashing in on super and then returning to gainful employment in the same week. This will not be viewed kindly by the Australian Taxation Office!
2. If you are aged 60–64 and leave gainful employment, there are no cashing restrictions on accumulated super when you cease employment. However, if you return to gainful employment while still in this age group and make further contributions to super, the resulting super is ‘preserved’ until you terminate the employment or turn 65. Note: Those who are aged 60–64 and self-employed may find it difficult to satisfy a Condition of Release prior to reaching 65. This is because they usually have no intention of larder commencing other employment or terminating their business until they actually retire.
3. People aged 65 or more can withdraw benefits at any time, regardless of their employment status.
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Martin Murden is director of Partners Superannuation Services within the Partners Group, a financial services company providing support to accountants and their clients in areas including superannuation and financial planning.
Phone (03) 8508 7800
Website
Email
For information on running a self managed super fund, including understanding compliance and penalties, see the Australian Taxation Office website.
If you’re struggling to make ends meets, the option to access your super early may seem like the answer to all your problems. But be careful as some such schemes are illegal.
There are circumstances where an early release of a portion of your superannuation can be granted but these are exceptions, not the rule. You must satisfy strict criteria laid down by your fund trustee, even then, this should only be considered in cases of extreme financial difficulty.
The upheaval in the economy has resulted in many people losing jobs and income from investments. This has seen an increase a number of illegal schemes that promise to help you access your super early.
At best, you may face heavy tax and legal penalties – at worst, your may lose all your money.
For information on circumstances where you may be able to access your super early, or details on which schemes to avoid, visit FIDO.gov.au.
Want to know if your in the right superannuation fund or how to start a self managed fund? Visit our Superannuation page.
As of 1 July 2009, the Government implemented changes to superannuation concessions. If you’re still salary sacrificing into your superannuation fund, you need to make sure this is still the best way to maximise your super.
The annual cap on concessional superannuation contributions will be reduced from $50,000 to $25,000 and the transitional cap (which applies until 30 June 2012 for those aged 50 years and over) will reduce from $100,000 to $50,000. Prior to 1 July 2009, any salary sacrificed into a superannuation fund was not counted towards the Centrelink income test. Now however, if you are under Age Pension age, any income that you salary sacrifice into superannuation will be counted as gross income under the income test.
Also being temporarily reduced is the superannuation co-contribution matching rate from 150 per cent to 100 per cent for contributions made in 2009-10, 2010-11 and 2010-12(a maximum co-contribution of $1,000 will apply). This will be increased to 125 per cent for contributions made in 2012-13 and 2013-14 (a maximum co-contribution of $1,250 will apply).
Before making any financial decisions, you should consult an independent financial advisor. For more information on the changes to concessional superannuation contributions, visit the Parliament House website.
Visit our Q&A section for helpful responses to your questions.
Hidden behind the budget news is the recommendation, apparently in the finally released Harmer Review and also the Henry review, to increase the age (from 55 to 67) at which super can be accessed. What will this mean?
The Harmer Review into pensions and retirement income was conducted in 2008, as was the Henry Review into taxation. It would appear that both support the need to increase the age at which Australians can access their super, the preservation age.
The Australian Financial Review (15.05.09) quotes Treasury secretary, Ken Henry, as saying:
“The gap between the superannuation preservation age and the age pension age means that individuals can use their superannuation savings before they reach the pension age, such that, on average, approximately a third of superannuation savings are being drawn down before the age of 65”
The theory of raising the preservation age to that of the pension age (now to be 67) would achieve many goals; increase older workforce participation, reduce the need to fund Age Pensions (and thus the tax burden on younger workers) and reduce the likelihood of people outliving their savings.
This all makes good sense, but it is a mighty leap from 55 years of age to 67 and not everyone retires because they “feel like it” – many are forced into retirement by redundancy and the need to care for family members. There will need to be many more inducements to save much harder before we deny people access to their own money until they are much much older.
Read the full Henry report and Harmer report now!
A cap on concessional superannuation contributions will be applied from $50,000 to $25,000 and for those over 50 the transitional cap will move from $100,000 to $50,000. Read more here.
We received a lot of requests for further information on our “Super funds dive” article in Tuesday’s enewsletter. Many subscribers contacted us for the best independent sites on superannuation. The following three sites may assist you to assess your funds performance, or choose an alternative.
FIDO, the ASIC consumer website offers a super fund comparison worksheet
Read a Choice article on superannuation in a volatile environment
Rainmaker/Selecting Super checklist which assists to make the best super choice
Do you really understand how superannuation works? Can you judge your funds performance? Super Decisions is here to help.
This week the Australian Securities and Investments Commission (ASIC) launched Super Decisions, an easy to understand guide to making the most of your superannuation, featuring essential facts and tips. Our super is important to us but how many of us really understand the rules or how best to make your super work for you? With people living longer there’s never been a better time to make sure what you have will provide what you need it to. Its not just for those planning to retire, they key to achieving what you want is good planning so this would also be an ideal guide for those starting their first job and choosing their first super account.
Providing in the guide are tips such as
· judging your super fund’s performance
· choosing your investment strategy; and
· what to do when you change job
It also includes the Super Fund Comparison Worksheet, a practical tool which enables you to compare benefits, fees, insurance, investment options and services of different funds. You can request a copy of Super Decisions by calling ASIC on 1300 300 630 of visit their website, FIDO.
Most bank websites now include a superannuation calculator. But for an independent comparison of funds and to get an idea of how much your super will be worth one day.
The FIDO super calculator includes the latest changes, such as salary-sacrifice, co-contributions, investment options and fees. Super laws seem to be in a constant state of flux, so to work out where yours is heading, try the FIDO calculator now
ClearView Retirement Solutions is urging women over the age of 55 to look at ways to bridge the retirement savings gap through the use of pre-retirement pensions.
A recent report by the Association of Superannuation Funds of Australia (ASFA)* has found women on average will accumulate approximately half the amount of superannuation of their male counterparts ($43,000 compared to $78,700). According to ClearView, depending on individual circumstances, a ‘pre-retirement pension’ offers women who are 55 or over and still working the ability to significantly boost retirement savings without compromising present incomes.
This may be achieved by increasing the proportion of their regular income that is salary sacrificed into superannuation, while drawing a tax-advantaged income stream from their existing super, to ‘top-up’ their reduced salary. In simple terms, this can allow them to grow their super even faster, without giving up a cent of their current income. And, despite beliefs to the contrary, this approach is not just for ‘the top end of town’. This strategy can be equally valuable to those earning an average salary and with modest existing super balances. Whilst the concept of accessing your super early as a means of growing it may seem counter-intuitive, the tax treatment of superannuation and a product called a pre-retirement pension could make it possible.
If you would like to receive regular updates on relevant changes and opportunities that could affect your retirement plans, join the ClearView Retirement Outlook Program to stay up-to-date with the latest information around superannuation, tax and Centrelink. Learn more about ClearView or call 132 976
* ASFA: Why a woman can’t be more like a man – gender differences in retirement savings; November 2004. Any advice in this material is general advice only and does not take into account your individual objectives, financial situation or needs. Before acting on it, you should consider the appropriateness of it taking into account your personal circumstances.
Q. I am a 56-year-old lady who has worked in nursing positions for about 40 years. Early this year, I developed short-term memory loss. If I resign from my nursing position, will I be able to collect my Q Super?
I have made visits to doctors, but no one has any suggestions or a remedy. I had some major losses in my life. My husband died in March after many years of a debilitating disease. My daughter moved away with her husband and two young children. I now have my elderly mother living with me, as her dementia is getting much worse. Can you advise me as to what I can do about my superannuation?
A. As you are over 55 and no longer working, you should be entitled to your superannuation. You need to approach Q-Super though. They will probably ask you to complete a declaration saying that you are retiring from the workforce. Be careful though, as you are not yet 60, remember that you could be up for some tax to remove your super. You should really turn your super into an allocated pension if you are leaving the workforce. You will need advice on this, so make an appointment with one of the Q-super people; they should be able to help.
If you would like to discuss this by phone. you can call me on (02) 9955 9633, email me at , or you can also have a look at my website www.stonebridgews.com.au
Richard Sheargold
The Australian Securities and Investments Commission (ASIC) and the Australian Tax Office (ATO) have warned people about an increase in the number of illegal superannuation schemes. If someone is offering you early access to super and it seems too good to be true, it probably is.
If you join one of these early access funds, you run the risk of losing large amounts of your savings and could even be fined for being a part of an illegal scheme.
Naturally these funds charge considerable fees in order to give you the early access, in some cases up to 30 per cent of your balance. Some operators have even stolen entire super funds. So take time to read the fine print and follow this advice from ASIC:
1. Don’t take financial advice from someone without a licence.
2. Think about superannuation as an investment for the future.
3. Seek help from a trusted source of you find yourself in financial difficulty.
For more information click here
Australians are now able to determine which fund their superannuation contributions will go to. There will be a huge amount of information, much of it commercially based, persuading you which fund to choose. There are, however, a couple of useful first-base websites you can visit to gain an objective overview.
The Association of Super Funds Australia (ASFA) has created a new SuperGuru website which offers an easy to follow guide to super and choice. In particular the “Super Smart Planner” calculator allows you to calculate your future retirement income, allowing you to see the contributions you will need to make to reach the income level you think you will require. Also offered on the guru site is a superannuation fund fee calculator which allows users to estimate and compare cost of contributing into any given superannuation funds. Fees are a major factor in the eventual return, therefore it is useful for investors to isolate these costs, and compare them both within the fund, and with other funds. ASFA warns that costs are not the only consideration when choosing a fund. Other issues are:
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