Superannuation - Making the most of your retirement savings - Morgans
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Superannuation
Never
underestimate
thepower
of a well-made
decision
Making the most of your
retirement savings
Look through
the lens of
experienceThe objective
of super
The provision of income in retirement is an important
objective of superannuation. However, it is also
important to ensure our superannuation savings provides
a comfortable standard of living in retirement. In this
regard arguably the biggest challenge for Australians
is knowing whether we have saved enough capital
throughout our working life to ensure these objectives
can be met. How much we need to retire on will depend
on what sort of lifestyle we want in retirement.
Long-term savings There are now limits on how much Mature age workers under 65 can
an individual can tax-effectively access some of their benefits as
The growing for future income contribute into superannuation. For an income stream without having
popularity of For many people, apart from their details on current taxable and non- to fully retire. There is now the
Self Managed homes, superannuation is their taxable contribution limits, please opportunity to wind down your
major asset. speak to your adviser as these work hours without having to
Superannuation limits can change. compromise lifestyle.
Growth in superannuation
Funds (SMSFs) investment has been significant, Government support It’s all about choice
SMSFs are one of the particularly in self managed
fastest growing segments superannuation, as many Government incentives are Since 1992, Australian employers
of the superannuation Australians seek greater available to low, middle and high have been legally required to
market. It is estimated involvement in the management income earners. invest in superannuation on behalf
more than a trillion of their long term savings. of employees. From 1 July 2005,
A person on the top marginal tax
dollars will be invested eligible employees have been able
Superannuation is a complex rate could potentially save tax
in superannuation within to choose their own complying
area and the subject of many of up to 32 cents in every dollar
five years. Over 98% of superannuation fund for their
legislative changes. However, they contribute to superannuation,
superannuation funds in employer contributions.
Government policy continues subject to contribution caps.
Australia today are family to promote Australian savings Lower income earners may qualify
based SMSFs. into superannuation through tax for tax offsets or co-contributions
SMSFs are becoming the concessions, financial incentives funded by the Federal Government,
vehicle of choice for many and rebates. depending on the amount
people. contributed into super.
3It’s time to get serious about your superannuation savings. 4 | Superannuation v2.0 11/17
How to make contributions
§§ Employer Super Guarantee Save through super, and save tax
Contributions – 9.5% (until
2021/22 FY) This table shows how salary packaging can increase your superannuation
§§ Employee – Salary sacrifice balance and save you tax.
contributions. Salary forfeited as Salary No Salary
contributions to super instead of Package Package
taking as taxable income. From
1 July 2017 employees will Gross Income $100,000 $100,000
also be able to make personal Less Salary Package $15,000 Nil
deductible contributions
§§ Employee – Voluntary Taxable Income $85,000 $100,000
contributions (after tax). Could Tax Payable (2016/17 tax rates) $20,872 $26,632
be eligible for Government
co-contribution payments if Net Salary $64,128 $73,368
other conditions are met Total deductible super contributions
§§ Self employed – deductible $24,500 $9,500
(including SG)
contributions or non-deductible
contributions Super contributions tax $3,675 $1,425
§§ Not working and under 65 Total tax payable $24,547 $28,057
– (non-deductible) contributions.
Ability to make deductible Net increase in super $12,750
contributions will depend on Income tax reduction $3,510
taxable income
§§ Spouse – spouse splitting Assumptions Salary Packaging Strategy
of spouse contributions, or §§ Jack is a full time employee §§ Package $15,000 pa from
contributions on behalf of a §§ Jack is 60 years old and wishes pre-tax salary into super
spouse to retire in 5 years time §§ Total taxable (employer)
§§ Earns $100,000 pa gross contributions $24,500 pa
§§ Employer super contributions §§ Benefits of salary packaging
= 9.5% of salary §§ Reduces taxable income
§§ Boosts savings to superannuation
in a tax effective manner
Who can make contributions
Details Description
18-65 years No work test, no conditions. Anyone can make
contributions.
65-75 years To contribute – must work at least 40 hours
over 30 consecutive days. Concessional and
non-concessional contributions allowed.
>75 years No contributions unless mandatory from
employer (including SGC). Can retain in
accumulation account even if not working.
Spouse If splitting contributions to spouse – receiving
spouseShedding the Light on
Transition to Retirement …
Transition to retirement (TTR) pensions have
become a popular strategy used by people over
preservation age wishing to access their super
without retiring.
In a nutshell … As they stand, TTR pensions can Key features
be an effective way of generating
Essentially, TTR pensions additional cashflow for a person §§ Can only be started once a
allow people to access their who wants to reduce their working person reaches preservation age
superannuation savings without hours without compromising their §§ Purchased with superannuation
having to retire permanently. This lifestyle. money
is because a TTR pension is a §§ No work test applies
type of account-based pension, From 1 July 2017 the tax §§ From 1 July 2017, TTR
governed by the normal pension environment within TTR pensions pensions will be taxed in the
laws that regulate superannuation will no longer be tax-exempt. same manner as accumulation
payments. However, for individuals over age accounts. They will no longer be
60 there may still be some value in a tax exempt pension
One key difference between a this strategy as pension payments §§ Commutations (ie lump sum
TTR pension and an ordinary remain 100% tax free to the withdrawals) are not generally
account-based pension is that, individual. allowed
being non-commutable, lump sum
§§ Maximum 10% limit on amount
withdrawals are not permitted. The
of pension income that can be
amount paid in regular instalments
drawn annually.
depends on the original amount of
money used to set up the pension
and the age of the beneficiary.
Preservation Age
The following table outlines the preservation age (SIS reg 6.01
(2)) for individuals depending on when the individual was born.
Date of Birth Preservation Age
Before 1 July 1960 55
1 July 1960 – 30 June 1961 56
1 July 1961 – 30 June 1962 57
1 July 1962 – 30 June 1963 58
1 July 1963 – 30 June 1964 59
After 30 June 1964 60
6 | Superannuation v2.0 11/17Strategy – Over Age 60
George is 60 years old and earns $70,000pa, from which he sacrifices $18,000 into super. George
purchases a TTR pension using $300,000 from his super. The maximum payment George can take
is $30,000pa (10%).
Without Strategy With Strategy
Gross Salary $70,000 $70,000
Less Salary Sacrifice N/A $18,000
Plus Pension Payment (non-assessable) N/A $30,000
Assessable Income $70,000 $52,000
Tax + M/L (less Rebates) $15,697 $9,267
Net Cash $54,303 $72,733
* 2016/17 tax rates.
The benefit from this strategy is that George may not only pay less personal tax through his reduced
assessable income, but he can also continue building his retirement benefits via salary sacrifice.
He could also contribute the extra after tax income received into super as a non-concessional
contribution.
7It’s your choice to pay less tax …
Access, preservation A low tax environment Superannuation investments in
property and shares retain the
and tax for your money … benefits of tax deferred income
If you are nearing retirement your Maximum tax on super earnings is and franking credits respectively.
superannuation may be available 15% compared to the company tax Small business owners can
to you either as a lump sum and/or rate of 30% and individual tax rate enjoy protection from creditors
an income stream. of up to 47%. and safeguard the future
Since July 1999, all contributions Retirement pensions attract no interests of their family through
made and all earnings accrued earnings tax or capital gains tax superannuation.
in superannuation are preserved. where that pension meets new Capital gains tax concessions from
This means you cannot access transfer balance cap rules. the sale of small business assets
them until you satisfy a condition may be available.
Superannuation benefits paid to
of release.
individual over age 60 are tax free.
Your superannuation account Benefits paid to individuals under
balance will contain two age 60 are concessionally taxed.
components – tax free and taxable.
Super benefits taken either as
lump sums or as an income
stream must be in proportion to Beneficiaries, death benefits
these two components. and insurance
Professional advice is recommended Superannuation does not automatically form part of your Will.
to manage and where possible It is the trustee of your super fund who determines where your
reduce these tax obligations so superannuation money goes in the event of your death. Under
you get the most out of your superannuation law a death benefit can be paid to your spouse
superannuation retirement benefits. (including same sex or de-facto), children (including step and
adopted), financial dependants or your estate, either as a lump
sum or, if to a tax dependant, in the form of a pension.
Steps can be taken to ensure that your wishes are considered
in the payment of your superannuation benefits to your
preferred beneficiaries. One such way is the preparation of
a ‘Binding Death Benefit Nomination’ (BDBN). A valid BDBN
means the super fund trustees are bound to pay your super
benefits in accordance with your instructions.
Life insurance premiums can be tax deductible within
superannuation.
Superannuation death benefits paid to a person’s tax
dependents are completely tax free.
Non-dependants only pay tax on the taxable component of
superannuation death benefits.
8 | Superannuation v2.0 11/17Take control over what happens to
your Superannuation benefits.
9How to enjoy your income in retirement …
Your decision about where and How do they work? Proportional Rule
how your money is invested in
superannuation could increase An account-based pension From 1 July 2007 new tax rules
your income in a number of ways. is specifically derived from apply to all income streams
By rolling your superannuation superannuation money. The derived from superannuation.
money into a pension income pension income is paid from the From this date only two tax
stream at or after retirement, balance of the money remaining components will apply:
you can: in the person’s superannuation
§§ a tax-free (exempt) component,
fund each year until it runs
§§ generate more tax-effective and
out. Payments can commence
income §§ a taxable component.
following full retirement after
§§ receive more generous preservation age, or if the person Superannuation benefits must
Centrelink treatment is permanently unable to work always be paid in proportion to
§§ have the flexibility to decide how due to invalidity, or at age 65 these new components – even
your assets will be left to your regardless of whether retired or where the benefit payment is tax
beneficiaries. not at that time. free for people over age 60.
Account-based pensions are Under Transition to Retirement Where the pensioner is under age
the most common form of rules, a person may also 60, he or she will not pay tax on
superannuation pension used. commence an account-based that portion of income derived
pension if they are still working, from the tax free component.
What is an account- but the pension must be a non- The taxable portion of the income
based pension? commutable pension (ie unable to payment will be assessable but if
take lump sums). funds are from a taxed source a
Account-based income streams
15% tax rebate will apply.
replace allocated pensions, and
are defined by the following.
§§ The pensioner has an individual
account whereby payments are Minimum % factors for pension payments
made at least annually.
§§ Minimum annual pension Age Payment – % of Account Balance
payment requirements must be
Under 65 4%
met, based on the person’s age
each year. 65-74 5%
§§ There is no maximum amount 75-79 6%
that can be paid out apart from
whatever the account balance is 80-84 7%
at that time. 85-89 9%
§§ The minimum payment is 90-94 11%
calculated by multiplying
the account balance by the 95 or more 14%
percentage factor based on the An account-based pension can offer a range of flexible
pensioner’s age at the time. investment options. The individual can position their
§§ From 1 July 2017, a $1.6m investments so they are more effective in meeting income
Transfer Balance Cap will apply. and growth needs in retirement. This flexibility means control
For more information speak to is ultimately retained by the pensioner over the level of
your Morgans Adviser. investment risk and return within the fund.
10 | Superannuation v2.0 11/17Tomorrow’s
blossom
relies on
today’s seedMorgans Financial Limited
ABN 49 010 669 726 AFSL 235410
A Participant of ASX Group | A Professional Partner
of the Financial Planning Association of Australia
Level 29 123 Eagle Street Brisbane
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v2.0 11/17
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