Noel Whittaker answers your questions on super

Noel Whittaker answers your questions on changes to superannuation.

Noel Whittaker answers your questions on super

On the lead up to the Federal Election on 2 July, it’s clear that one of the main issues concerning pre-retirees and retirees is the effect that the changes announced in the Federal Budget 2016/17 will have on their superannuation balances and retirement income. Noel Whittaker’s inbox has been inundated with emails on this topic and today he answers the most common questions.

Q1. If I have made more than $500,000 of non-concessional contributions before the Budget announcement, do I need to withdraw the excess?

A. No. However, if the Coalition wins the forthcoming election and the legislation is passed, you will not be able to make any further non-concessional contributions 

Q2. What happens if I make a contribution after Budget night that takes me over the non-concessional cap?

A. Anybody who exceeds their cap by making contributions after Budget night will be notified by the ATO. They will then be asked to withdraw the amount contributed above the $500,000 non-concessional cap, along with any associated earnings. If the individual withdraws the excess at this point, the earnings on the excess amount will be taxed at their marginal tax rate but they will receive a 15 per cent tax offset for the tax charged in the fund. There is really no downside in making contributions between now and the end of the financial year.

Q3. I understand that while the limits on contributions have been reduced, the unused caps can be carried forward. What would happen if I didn't work in the current financial year?

A. The caps on concessional contributions are currently $30,000 a year for people under age 50 and $35,000 a year for people aged 50 and over. These are going to reduce to $25,000 a year but the reduction will not take effect until 1 July 2017, so you have 13 months to contribute using the higher caps. Only amounts of unused concessional from 1 July 2017 will be able to be carried forward.

Q4. Is there a limit on how the unused caps can be carried forward?

A. The carry-over caps will expire if not used within five years after they have accrued. I believe this is unreasonable given the Government has stated that the purpose of allowing the caps to be carried forward is to give people who were out of the workforce a chance to catch up.

Q5. What happens if I contribute more than I am allowed?

 A. If your concessional contributions in any one year are more than the concessional cap in that year plus unused amounts carried forward, the excess will be subject to excess contributions tax. This will essentially convert them into non-concessional contributions.   

Q6. What sort of income and living standards would I have with a $1.6 million super balance in retirement?

A. The Government claims that a superannuation balance of $1.6 million could buy an indexed annual income of around $91,000 a year – four times the amount of the single Age Pension, which is currently around $22,700 year. If would be a useful exercise to go to my website www.noelwhittaker.com.au and then go to the Calculators section and have a play with the Retirement Drawdown Calculator. This allows you to enter your own data to find out how long your money may last.

If we enter $1.6 million, with an earning rate of five per cent, with annual drawdowns of $90,000 indexed at three per cent per annum you will see that all the money is expended in 23 years. Just understand that all long-term projections must be taken with a degree of skepticism because retirees tend to spend more money in the early years of retirement than in the later years, and earning rates and inflation in 10 years could be considerably different to what they are today. But it is still a useful exercise.

The irony of course is that this amount is about a quarter of what politicians pay themselves after they retire.

Q7. Does that cap limit apply to how much I can hold in my retirement phase account? What happens if my retirement account grows in excess of $1.6 million?

A. The cap only limits the amount you can transfer into a retirement phase account – it does not apply to the balance on that account. The balance in your pension account can grow above $1.6 million. But keep in mind that minimum drawdowns, probably at least 5 per cent, will still apply, which means the earnings will need to exceed the drawdown rate for the balance to grow.

Q8. If my pension account balance falls below $1.6 million, can I transfer more in to top it up?

A. You can transfer more into a pension account only if you have not previously exceeded the cap of $1.6 million. You will be allowed to add to it if you have not met the cap. For example, if you transferred $1.6 million and the balance fell because of a market crash, you could not top it up. But if another person had transferred only $900,000 into their pension account, they could add a further $700,000 at some stage in the future. Bear in mind, that a person over 75 now cannot add to their superannuation under the present rules.

Q9. I am 71 now and retired – can I contribute to superannuation before 30 June 2016?

A. Under the existing rules, a person aged between 65 and 75 cannot contribute to super unless they pass the work test, which involves working 40 hours in 30 consecutive days in the year in which they wish to contribute. However, if the superannuation rule changes announced in the budget are passed, a person will be able to contribute to super until age 75, irrespective of whether they are working or not. This will take effect from 1 July 2017.

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: noel@noelwhittaker.com.au





    COMMENTS

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    thommo
    16th Jun 2016
    11:20am
    Yes, the politicians do only look after themselves, as Noel has pointed out, they pay themselves about 4 times the return a lot of retirees get on their Super. If the politicians cut back, (tightened the belt) the same as we're expected to, I wouldn't mind the austerity climate, but they won't do what we have to do.
    I can't stand them.
    Mez
    16th Jun 2016
    11:29am
    Agree with you thommo.
    My comment below was in typing stage when you had posted as noone had any comments at that point in time so the word,"ollie" is meant to be "pollie" but the p letter needs to be tapped harder on my phone.
    particolor
    16th Jun 2016
    11:35am
    My sympathy goes out to Anyone who has to push harder for a P ! :-(
    Farside
    16th Jun 2016
    11:42am
    Thommo, the issue is not the amount politician's pay themselves (this is set by an independent remuneration tribunal) but that politician's are exempted from the superannuation rules that apply to most citizens. They earn more than four times the average wage so it's not surprising their pensions are also higher but do they need other perks only available to politicians?

    I suggest you give some more thought to the consequences of paying political leaders minimum wage and then retiring on the old age pension?
    particolor
    16th Jun 2016
    11:57am
    Independent Remuneration Tribunal :-) :-) :-) :-)
    thommo
    16th Jun 2016
    5:06pm
    Brian . How naive. The politicians remuneration is high, but it should be tempered to come within the bounds of the rest of the community. They are paid in taxpayer dollars, they get overly generous perks (many of which are not revealed to the public (unless you get caught out like Bronwyn Bishop who'se snout has been in the trough for ages), and then there is their overly generous taxpayer funded pension which they get when they leave office - not when they reach pension age like the rest of us. This puts them well apart from the average wage earner, and they should make it their business to see that there is equity and fairness in their remuneration,...Its not a case of "oh well the Remuneration Tribunal gave it to us"..Thats a cop-out.
    Jannie
    16th Jun 2016
    5:11pm
    You are so right thommo Brian get your facts right
    Mindy
    16th Jun 2016
    7:21pm
    Brian's facts are right. bullying by uninformed readers does not change the facts.
    Jannie
    16th Jun 2016
    7:24pm
    Read this Mindy by Thommo
    They are paid in taxpayer dollars, they get overly generous perks (many of which are not revealed to the public (unless you get caught out like Bronwyn Bishop who'se snout has been in the trough for ages), and then there is their overly generous taxpayer funded pension which they get when they leave office - not when they reach pension age like the rest of us. This puts them well apart from the average wage earner, and they should make it their business to see that there is equity and fairness in their remuneration,...Its not a case of "oh well the Remuneration Tribunal gave it to us"..Thats a cop-out.
    Old Geezer
    16th Jun 2016
    7:46pm
    Haven't the rules changed in that pollies elected now can't access their pension until they are 55?
    Adrianus
    21st Jun 2016
    11:09am
    The Independent Remuneration Tribunal. They are Public Servants are they not? They can increase the incomes of Public Servants. We saw Gillard become one of the highest paid leaders in the world when her parliamentary income was increase by 40%. Conversely, we saw Abbott put a freeze on politician's remuneration on being elected. So yes I agree with Jannie, the PMs do have some sway with the Tribunal.
    LiveItUp
    16th Jun 2016
    11:20am
    Remember none of this has been passed into law and I expect what is passed may have many changes.
    Rae
    16th Jun 2016
    6:32pm
    It certainly might Bonnie. We have to get through October first though.
    The last time I saw volatility anything like now was in 2008.
    I do believe BIS has lost the plot finally.
    I'm saving cash right now and cashing in as I can.

    Although I am still holding some index Aussie and International funds just in case. Buying the dips seems practical but a gamble.
    Gold is also an option.

    Planting vegies, fixing up the traps, mending the nets and sorting out the rods haha. My aging toyboy has been chopping wood. I keep threatening to buy some in but he still insists on swinging that ax and then whinging about the sore shoulder.

    I hope Mr Whittaker is right but I won't hold my breath hoping liquidity will hold up.

    If it doesn't you could do 60% of your super. That will make any government think twice about upseting the punters more by changing anything
    Mez
    16th Jun 2016
    11:23am
    My mind boggles at the figures that are quoted in the article which would only be seen with men's super funds as women have been unfairly left out of the earning equation, with lesser salaries yet we are not lesser humans!
    Just like the ollies who have banded together for earning 75% of their salaries entitlement, if you can call it that, after they retire, the menfolk have likewise got the old boys' clubs in patting themselves on the back with higher wages than their female counterpart!
    For these reasons I say that the limit ought to be less than $500,000.00!
    Fliss
    16th Jun 2016
    11:35am
    People who have super balances of these amounts have added to them themselves - they are not purely super guarantee employer contributions. And women can salary sacrifice to boost their super. And husbands can add to spouse's super. AND many women are on same salary as men.
    Rosret
    16th Jun 2016
    11:50am
    On the contrary people who put in $500K have often acquired the money by a house sale or inheritance. They have deposited the money with the sole purpose of being independent throughout their retirement. We should be encouraging large deposits to take the strain off the government pension system. Some people use this sort of money to buy a mansion and lots of overseas trips and then cry poor and want the pension. I do not understand the government's thinking at all.
    Old retirement systems gave individuals a sound indexed super payout for their entire lives. We have to budget on virtually zero % interest for an unknown due death date and an escalation in the cost of living. Its only that 10% of the community on over $1.6M in super who will be able to live comfortably into their 90s.
    Most of us are going to find the future very grim indeed. ...and sadly Mez you are so right. The women suffer most and will not even be heard until the men are suffering too.
    LiveItUp
    16th Jun 2016
    12:19pm
    A lot of people put inheritances and insurance payouts into super. $1.6 million is not a lot of money to have in super.
    Lozza
    16th Jun 2016
    2:12pm
    Totally agree with Mez. Fliss, because women are generally paid less than men so too their percentage based SG Contributions are less. In addition they rarely have surplus funds available to "boost their super". And not all women have husbands to contribute to their super (or who, if they have one, are willing to contribute). AND many, many women have not been equally remunerated for equal work and qualifications. This makes the super/retirement equation quite problematic, particularly for single women. Most will end up living below the poverty line on a pension.
    Rae
    16th Jun 2016
    3:02pm
    You do realise that a couple in retirement can earn almost $58000 a year tax free?

    Why would you put all your after tax money into super? You might need it before whatever age they say you can get it at or in a form different from what they say you can take it.

    That is exactly right. Put all your eggs in the super basket and take what rules the government decides to make.

    Some in super and some outside makes sense.
    Old Geezer
    16th Jun 2016
    3:42pm
    The idea is to earn as much tax free outside super and then earn the rest inside super also tax free. Even with the new Labor and LNP super you can still quite a bit more than the pension before you pay any tax.
    Fliss
    16th Jun 2016
    7:59pm
    Well said Old Geezer. Spot on!
    And Rae too - correct!
    Lozza, a single woman can still invest & salary sacrifice - she doesn't need a man in her life to do that. :)
    BJ
    17th Jun 2016
    7:38am
    hey Bonny a lot of people don't get inheritances and insurance payouts and $1.6 million is a lot of money and the average australian has no chance of ever having that amount and i find your comments repulsive pull your head in
    particolor
    16th Jun 2016
    11:39am
    I got 3 Grand in Super when I retired 20 years ago ! :-) Knowing this was not going to last me the rest of my life, I bought a Car with it:-) I still drive that car :-) :-)
    Migrant
    16th Jun 2016
    12:35pm
    How much is added to the Australian GDP by all this tinkering with the retirement rules ?

    Migrant
    GeorgeM
    16th Jun 2016
    12:37pm
    Yes, Thommo, that is the key issue - politicians paying themselves well even with Pensions while asking everyone else to tighten their belts - especially with the disgusting broken promise not to change pensions by changing the Asset test rules from Jan 2017.

    I understand they have to serve 2 terms before they become eligible. Hence, suggest all sitting MPs be sacked now - up to all of you.
    Bee
    16th Jun 2016
    12:37pm
    Thank you for this Noel. I really like your articles as you use simple understandable language. PS - i am one of the hundreds of thousands of australians who believe this new super legislation is unfair. I'm not voting for the coalition because of this. but then again labor legislation is just as bad. as u said only winners are politicians.
    Jannie
    16th Jun 2016
    1:11pm
    Agree with you Bee I have always voted for the coalition but this time around not voting for them or labor. The two parties are out of touch with ordinary ozzies only look after themselves and line their pockets.Please somebody help with some advice on who we should be voting for in this critical election taking into consideration cutting immigration levels and cut handouts to illegal refugees, look at deporting anyone who does not fit into our society, stricter laws especially when terrorism is involved, more help for the homeless, extra funding for hospitals, more help for pensioners as one cannot live on $400 per week if you have to pay rent or a mortgage, pollies to be treated same way as us when they retire, stop China buying our land, stop food bastardisation from China and elsewhere especially seafood don't export most of our seafood so we dont have to buy seafood from filthy food manufacturers who don't have any quality control the list goes on.
    Andy
    16th Jun 2016
    1:04pm
    the independent remuneration tribunal, needs to explain why they give Politicians so much money, who is at the tribunal to speak against such actions? there clearly needs to be some sacking done, and the pensions brought back down by several thousand dollars per head.
    this is no joke, it is out of hand.
    Fredklaus
    16th Jun 2016
    1:11pm
    like
    Jannie
    16th Jun 2016
    1:14pm
    Agree
    particolor
    16th Jun 2016
    3:41pm
    Me Too !
    Mindy
    16th Jun 2016
    7:24pm
    pay peanuts, get monkeys
    Jannie
    17th Jun 2016
    4:46pm
    Got monkeys already Mindy
    ex PS
    17th Jun 2016
    5:12pm
    Pay peanuts and get people who are doing the job because they believe in serving the public.
    Jannie
    16th Jun 2016
    1:14pm
    I would advise not to put more into super at our age as my super is not performing so all of my contributions have been lost over the past yearso I am not putting anymore into my super for it to be eaten away by the way the funds are invested.
    Greg
    16th Jun 2016
    2:04pm
    Problem is not the superannuation scheme but how that money within your own scheme is invested. That's where it can be difficult to know which fund it should be in...high growth=high risk, low growth=low risk. IE I've had my super account for 20 years and when it grew to the amount I was happy with transferred it to a conservative fund so now the value is only 1.1% down on its high set back last year.
    Rae
    16th Jun 2016
    3:06pm
    You can stop paying for life insurance and income protection if you wish. You need to ring the fund and get the paperwork to stop payment. I stopped after the kids were no longer dependents. Saved a lot of money that way.
    Fliss
    16th Jun 2016
    3:56pm
    Totally agree Greg. I have a SMSF for that reason. Was tired of seeing the balance going backwards. :(
    ex PS
    17th Jun 2016
    5:14pm
    Jannie, most Super Funds give you a choice on how you want to invest. There are low risk options.
    Jackie
    16th Jun 2016
    1:24pm
    This seems extraordinarily and unnecessarily complicated. Surely the Labor policy is better - that any super income above $75,000 is taxable at 15% ? Apparently they will both have a similar effect on the budger bottom line.
    Rae
    16th Jun 2016
    6:36pm
    Seemingly sensible but that is not always the endgame. Sometimes it is purely about who can make the deal and what fees and charges the punters will cop.
    Jackie
    16th Jun 2016
    1:31pm
    If only the politicians entitlements, and super payouts, and continuing "pensions" were part of the budget, so we could see them. But Howard and Costello created the "Futures Fund" and that is where it all sits, well hidden from view.
    Jannie
    17th Jun 2016
    7:20am
    Vote independent and one nation
    ex PS
    17th Jun 2016
    5:17pm
    I did exactly that as I am off to Europe on Monday, I need to spend some of my Super before the government thinks up a new way to steal it.
    Noel Whittaker
    17th Jun 2016
    10:43am
    The talk about politicians perks is interesting – do you know why Labor is launching this Sunday so close to the election? It's because their staff are on the public payroll till launch day – and then the party has to pay for them! I wonder when the Coalition launch is..
    ex PS
    17th Jun 2016
    8:45pm
    The government doesn't need to worry too much, it can just put out public information clips, otherwise known as tax payer funded propaganda.
    Noel Whittaker
    17th Jun 2016
    10:45am
    There is not much difference between the liberal idea of a $1.6 million pension balance and Labor taxing the excess income above the $75,000 a year at 15%. I think the coalition idea is simpler.
    MacI
    20th Jun 2016
    2:10pm
    As I have commented elsewhere on this site retirees with a Super balance far less than $1.6M will be taxed under Labor's plan. Labor present the deception that only Retirees with more than $1.5M in their Super Fund will pay 15% tax on earnings. The problem is that to achieve an average 5% return some years will be greater than 5% to balance out the years with less than a 5% return. Take my Super Fund as an example. With Super invested in the Balanced option 8 of the last 10 years would have seen a Super balance less than $1.5M taxed under Labor's plan. In one year a balance over $402.5K would pay tax.

    I agree with Noel - the coalition idea is simpler - and not only simpler but fairer.