Too many older Australians are missing out on valuable retirement income by failing to take advantage of key strategies. And research says members of APRA-regulated funds, as opposed to those with SMSFs are playing the price.
Research by Self-Managed Superannuation Fund (SMSF) administrator Class indicates that there are two groups of retirees: the ‘haves’ (those who are advised and who are more likely to be SMSF members) and the ‘have-nots’ (primarily members of funds regulated by the Australian Prudential Regulation Authority, APRA).
And while the government is demanding that APRA-regulated funds provide more assistance to pre-retirees and retirees, the question of their legal capacity to give ‘advice’ still looms large.
Couple that with the fact there is no ‘typical’ retirement and that it’s common for retirement plans to be upset by retrenchment, ill-health and caring duties. It’s plain to see that the complexities of planning and being up to speed with retirement income strategies can be, simply, too hard for many.
Where you may be missing out
The Class research found there were two key areas where members of APRA funds were missing out.
Only half of all APRA-regulated fund members aged 65 and over had taken advantage of rules that allow them to move funds into a tax-exempt retirement income product. Almost seven in every eight SMSF members (who are also the trustees of their funds) had made that move.
Figures from AustralianSuper back up this finding and show that about 140,000 members over the age of 65 have super in accumulation accounts and are therefore paying tax on those earnings.
Earnings in accumulation stage are taxed at 15 per cent, whereas those in pension mode are tax free.
A 65-year-old who has $400,000 in an accumulation account that is earning 4 per cent over a 12-month period pays 15 per cent, or $2400, in tax on the earnings. Someone with a balance of $800,000 pays $4800 in earnings tax. If those funds were in pension mode, no tax is payable.
Transition to Retirement
The second key strategy that too few older Australians are employing is the Transition to Retirement.
The TTR is available to fund members who meet qualifying criteria, and has a number of benefits. Professional Planner explains that it allows employees to set up an account-based pension while continuing to receive employer contributions to their super. Potentially, they could reinvest pension income as voluntary contributions, in effect turbo-charging their account balance.
Professional Planner believes the widespread failure to take advantage of the TTR is because most Aussies are either unaware of the rules or are not being advised on how to best use them.
The Class research indicates that those most in the dark tend to be members of APRA-regulated funds.
“An unadvised super fund member must know the strategy is even available in the first place, will need to be guided through how to set it up, and will need to know where to go to get that guidance or advice,” Professional Planner says. “Even if they know to ask for it, it’s not certain their fund can currently give them that advice.”
The task for APRA-regulated funds is to cut the number of ‘have-nots’ by revamping their structure and offering retirees and pre-retirees more guidance, in accordance with the government’s Retirement Income Covenant.
Are you happy or dissatisfied with the guidance you’re receiving from your super fund? Have your say in our Flash Poll asking what you want from your super fund.
Also read: Superannuation payout complaints soar