Superannuation Planning | Superannuation Requirements
Superannuation is an employer requirement for their employees
Contributing to super is very attractive for employers and self-employed people – most of whom are able to claim super contributions as a tax deduction.
Whether you have just started your working life or are about to leave the workforce, superannuation is a tax effective way of saving and should play an essential role when you plan your future.
How does super work?
Since the introduction of the Superannuation Guarantee (SG) scheme in 1992, employers have been required to pay super contributions (to a complying super fund) on behalf of all their eligible employees.
These contributions are pooled (by the super fund) with other investors, and invested into a range of asset classes including shares, property, government bonds and cash. Super funds then typically give their members a choice of investment options, which can be made up of one or more of these asset classes. This ability to invest simultaneously across asset classes demonstrates one of the best features of investing in super – diversification. Not only can you ‘spread the risk’ across a range of asset classes, you can also access investment opportunities you probably wouldn’t even consider if you were investing yourself.
Tips and traps
The right investment option for you will be determined by a number of factors including your investment timeframe, tolerance for volatility and lifestyle goals.
You should review your investment options with the help of a financial adviser.
There have been some significant changes to superannuation legislation in the last couple of years. We give you the confidence to feel in control of your super and to make tax effective decisions on how to best manage it.
If you are in the situation where you are accumulating wealth, and retirement is a few years away, you can still make sensible decisions about whether you need to put more money into superannuation, or simply just make sure you are in the right fund to maximise your earnings.
We can assist you in not only making sure you are investing in the right fund, but also put a strategic plan in place to increase your superannuation benefit and potentially your tax position.
Why super is so important to your retirement?
With low tax rates and a host of government concessions, super is one of the most attractive retirement savings vehicles available. But are you making the most of it?
Your super is likely to be the second biggest asset you accumulate in your lifetime, after your family home. So it’s going to play an important role in how you spend your retirement. And spend you will. Early retirements and longer life expectancies mean retirement is getting longer. Not to mention more expensive. And the age pension will only provide the most basic needs.
When it comes to your retirement lifestyle, making the most of your super could make all the difference.
Why is super so generous?
The fact your super is generally not accessible until retirement makes it a great, compulsory way to save. Saving money inside super also rewards you with a range of tax benefits you can’t get outside super, including:
A low rate tax environment for individuals earning less then $250,000. This means that earning in the fund are taxed at 15% rather then your marginal tax rate.
The opportunity to turn a super lump sum into an income stream that may be tax-free.
The opportunity for people aged 60 and over to withdraw money tax-free from super.
You should bear in mind that the benefits associated with super are effectively a reward for foregoing access to your money until retirement, so you have to be prepared for that scenario. There are also limits to how much money you can put into super each year (without paying penalties).
Tips and traps
To be tax-deductible, contributions must be made to a complying super fund, and on behalf of people under age 75.
Self-employed people up to age 75 can claim a tax deduction for all contributions.
All employer and personal deductible contributions are subject to 15% contribution tax in the fund up to the concessional cap limit of $25,000 pa.
The rules around super can be complicated, and there are often legislative and product opportunities you need to be aware of. To ensure you’re making the most of your super, it pays to seek financial advice.
Getting your hands on your super
It’s been locked away for years – growing into a lump sum that will one day help fund your retirement. But what happens when it’s time to start using your super?
When it comes to retirement savings plans, there are few better than superannuation – one of the reasons being that you usually can’t spend your money until you retire. But if you’re coming up to retirement, it won’t be long before you can get your hands on your super. And the decisions you make now could make a big difference later.
When can you access your super?
Generally speaking, you can’t access your ‘preserved’ super benefits until you retire, or at age 65. You are considered to be retired if:
you’ve reached your preservation age, have stopped working, and never intend to return to paid work, or
you’ve reached age 60 and have terminated an employment arrangement
Accessing preserved benefits early
You may be able to access preserved benefits before retirement under certain circumstances:
permanent or temporary incapacity
specific grounds such as medical treatment for you or a dependant where the condition is life threatening, or causes chronic pain or chronic mental illness
terminating employment where your super balance is less than $200
investing in a ‘Transition to retirement’ pension after preservation age
Accessing non-preserved benefits
Although super is most commonly classified as preserved, some or all of it may be considered ‘Unrestricted Non-Preserved’. If this is the case you may be able to withdraw your benefits early.
You can find out what type of your benefits you have by asking your super provider. But be aware there are tax implications of accessing non-preserved benefits before age 60 that should be discussed with your financial adviser.
How should you take your super?
When it comes time to access your super, you can choose to take it as a lump sum, an income stream, or a combination of both.
A common way to access super is through a pension-style product (like an allocated pension) that pays you an income stream while keeping your money invested in a selection of asset classes of your choice.
There are a number of tax advantages of using an income stream (see below). And some income streams even let you withdraw a lump sum whenever you require it.
Tax advantages of accessing benefits as an income stream
no tax on income payments received from age 60
no tax on lump sums received from age 60
super benefits received are not included in your tax return from age 60
under age 60 income payments are taxable, but some of the income may be tax-free or subject to a tax off set
under age 60 lump sum cash withdrawals are tax-free up to a certain limit, then are subject to concessional tax rates
no limits on how much you can withdraw (if the product allows it)
you may increase your social security entitlements under the Centrelink income test.
Tips and traps
If you’re receiving super benefits as a result of the death of a loved one, you may be able to choose between an income stream or lump sum, but there are some situations where only a lump sum is permitted. You should speak to Plan Your Future about your options.
Transition to Retirement
If you’re considering easing into retirement by working part-time, you may be able to access your super through a Transition to Retirement (TTR) pension.
TTR pensions give you access to your super (from preservation age) without retiring or ceasing employment. The trade-off is that you have to take your super in the form of an income stream – you can’t cash any lump sums from this account until you retire or turn age 65.
The intention is to allow individuals who are scaling back their working hours (and their salary) to use super to help fund the gap in their income.
Will your savings go the distance?
With people retiring earlier and living longer, retirement can now last up to 30 or 40 years. In fact for a couple retiring in 2010 (male 65, female 60), there is a 57% chance one of them will live to age 90 .
Making your money last this long, and giving yourself the kind of lifestyle you want in the meantime, won’t happen by accident.
But with our help, you can maximise your super balance in the lead-up to retirement, and adopt strategies to turn your super lump sum into an income for life.
It is important that you consider receiving advice with regard to superannuation and retirement planning. Contact us for a 1 hour obligation and cost free consultation.
We are based in the north Brisbane suburb of North Lakes, we service clients from Strathpine, Petrie, Kallangur, Mango Hill, North Lakes, Burpengary, Narangba, all the way to Sydney, Melbourne and beyond. We come to you or you can meet us at our office.