How much do I need to retire?

According to the Association of Superannuation Funds of Australia (ASFA), a couple requires savings of $640,000 if they wish to enjoy a ‘comfortable’ lifestyle in retirement. For a single, the figure is $545,000.

Due to support from the age pension, a single or a couple can fund a ‘modest’ lifestyle with savings of just $70,000 at retirement.

How is my super taxed?

Broadly, contributions are categorised as either concessional or non-concessional.

Concessional contributions are contributions on which an employer or an individual has claimed a tax deduction.

Non-concessional contributions are made from after-tax income. They include many personal contributions and government co-contributions.

Concessional contributions are taxed at 15% within the superfund, with a tax offset available to low income earners. Non-concessional contributions are not taxed within the fund.

Investment earnings are taxed at 15% in the accumulation phase. Over age 60, earnings in the pension phase, and any payouts from the super fund, are tax-free.

How can I contribute to super?

If you are over 18, employed, and earn more than $450 per month your employer will contribute 9.5% of your ordinary time earnings to super. You can further boost your super by:

• Asking your employer to make concessional salary sacrifice contributions from your pre-tax income.

• Making personal contributions from your after-tax income. Subject to set limits you may be able to claim a tax deduction for these contributions in which case they will become concessional. If no tax deduction is claimed they will be non-concessional.

• Low to middle income earners who make a personal non-concessional contribution may receive up to $500 as a government co-contribution.

• If you contribute on behalf of a spouse who earns less than $37,000 a year, you can claim a tax offset of up to $540.

• A special ‘downsizing’ contribution is available to over-65s who sell a home.

Age limits and work tests may apply to some types of contribution.

When can I access my super?

• When you turn 65, even if still working.

• When you reach preservation age (between 55 and 60 depending on date of birth) and have retired.

• If you start a transition to retirement (TTR) income stream.

• If you face severe financial hardship, specific medical conditions or under the first home super saver scheme.

Who can I leave my super to?

If your super fund allows binding death benefit nominations, you can elect to have your superannuation paid to your legal personal representative. The money will then be distributed as instructed by your Will. Alternatively, you can instruct your fund trustees to pay your death benefit to one or more of your ‘dependents’. Under superannuation law these are:

• Your spouse (includes same-sex and de facto partners).

• Children.

• A financial dependent.

• People you had an interdependency relationship with.

Without a binding nomination, your super fund’s trustees decide which dependents will receive the death benefit. They will be guided, but are not bound by, any non-binding nomination.

How do I make the most of my super?

Superannuation remains, for most people, the best vehicle within which to save for their retirement. However, it can be complicated and there are numerous rules to navigate.

That creates challenges, but it also generates opportunities, many of which can add thousands of dollars per year to your retirement income.

Ready to unearth those opportunities and make the most of your super? Now is the perfect time to talk to your financial adviser.

Please contact our financial advisors to discuss your superannuation and financial planning needs. Call (02) 4926 2300 or contact us.

Other Articles Of Interest:

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Being actively involved in how and where your super is invested, could make a real difference to your retirement savings over the long-term.

If you are considering going down this route, there are some factors to think about such as your retirement goals, how long you have until you retire and the amount of risk you’re comfortable taking on.

For instance, if you’re close to retiring, you may want to avoid putting your super somewhere that’s too risky. Riskier investments tend to experience more ups and downs so time may help to ride them out.

This article considers four examples of investment strategies for your super.

The importance of diversification

Before we discuss the various investment strategies, it’s important to highlight the significance of diversification. Like any type of investment, spreading your super across different types of investment options, can help to build a strong portfolio and manage risk.

Why?

Because if you were to invest all of your super into one asset class such as property, your investment may suffer a loss if the property market was to fall in value. However, if you spread your money across multiple assets, you may have a different result.

Investment strategy type 1: Growth

If you don’t think you’ll be accessing your super for at least 10 years or more, a growth strategy may work for you as a longer timeframe may help an investment portfolio withstand volatility while aiming for returns.

A growth strategy that follows a higher risk, higher return approach tends to have a larger focus on assets that are exposed to capital appreciation. That is, investing in assets which are expected to grow at a higher rate than the industry or overall market.

For instance, this may involve an investment of around 70-85 per cent in shares or property with the rest in fixed interest and cash-based investments.

Historically, over any 20-year period, a growth strategy has delivered better returns than more conservative portfolios which would mainly be invested in fixed interest and cash. However, over a short-term period, you may experience significant losses as a result of market volatility.

Another key benefit of a growth strategy is that by making greater returns on your investment, your savings are more likely to keep up with the rising cost of living. This is arguably important because over time inflation may reduce the value of your retirement savings, which could make it difficult to maintain your standard of living when you’re retired.
Investment strategies for your super

Investment strategy type 2: Balanced

Similar to a growth strategy, if you aren’t planning to access your super anytime soon, opting for a balanced investment portfolio may be another option.

This strategy is aimed at balancing risk and return so your portfolio has enough risk to provide reasonable returns, but not enough to cause significant losses.

A balanced strategy typically involves investing around 60-70 per cent in shares or property, with the rest in fixed interest and cash-based investments.

Investment strategy type 3: Conservative

You may be considering how you could protect your capital if you want to access your super within 3-5 years.

A safe or conservative strategy follows a lower risk, lower return approach so it’s really about preserving the value of your investment portfolio. While there may be less risk of losing money, a downside could be that your returns may not
keep up with inflation.

For example, this could involve investing around 20-30 per cent of your super in shares and property, with the rest in fixed interest and cash-based investments.

Investment strategy type 4: Ethical and sustainable

You may choose not to invest in certain companies based on ethical grounds. For example, taking a stance against investing in firearms. This approach is called ethical or socially responsible investing.

There is also sustainable investing which goes beyond incorporating just ethical and social factors. That is, it approaches investing from an environmental and governance lens too. Some super funds now offer this, so if these factors are important to you, speak to your super fund for more details.

If you’re a self managed super fund (SMSF) trustee, there are a range of sustainable managed funds which you can tap into.

Review your investment approach

You may want to review your current investment approach with your super fund or SMSF to consider how it aligns with your goals and risk comfort.

For example, if you are looking to take an active role by directly investing your super in shares, exchange traded funds and managed funds, there are super products and platforms which enable you to do this.

Alternatively, a SMSF is an option that enables you to have more control over how your super is invested with the added bonus of being able to access more investment options such as direct property and commodities. You also have the ability to borrow within your super fund for investment. There are a
number of administration requirements however, as well as legislative requirements to adhere to.

You may want to consider speaking to a financial expert when determining which super product may be best for you.

This article was prepared by BT, a part of Westpac Banking Corporation ABN 33 007 457 141, AFSL and Australian Credit Licence 233714. This information is current as at 22 May 2019.

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This article provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. It does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness, having regard to these factors before acting on it. This information may contain material provided by third parties derived from sources believed to be accurate at its issue date. While such material is published with necessary permission, no company in the Westpac Group accepts any responsibility for the accuracy or completeness of, or endorses any such material. Except where contrary to law, we intend by this notice to exclude liability for this material. BT cannot give tax advice. Any tax considerations outlined in this article are general statements, based on an interpretation of the current tax law, and do not constitute tax advice. The tax implications of investing in property, shares or superannuation can impact individual situations differently and you should seek specific advice from a registered tax agent or registered tax (financial adviser).

Superannuation is a means of saving for retirement, which is, in part, compulsory. The government has placed restrictions on when you can access your investment held in superannuation. The Government has set caps on the amount of money that you can add to superannuation each year on both a concessional and non-concessional tax basis. There will be tax consequences if you breach these caps. For more detail, speak with a financial adviser or visit the ATO website.

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Are we there yet?

Allowing for future age pension entitlement the Association of Superannuation Funds of Australia (ASFA) calculates that a couple will need savings of $640,000 at retirement to maintain a ‘comfortable lifestyle’ .) ASFA equates ‘comfortable’ to an annual income of $60,264.)

How are we tracking as a nation? 

In 2015-2016, 50% of men aged 60-64 had super balances of less than $110,000. For women the figure was a more alarming $36,000 – not even enough to provide a single person with a ‘modest’ lifestyle. (ASFA estimates that to upgrade from a ‘pension only’ to a ‘modest’ lifestyle would require a retirement nest egg of $70,000.)

Last minute lift

If your super is looking a little on the thin side there are a few ways to give it a boost before retirement.

• Make the most of your concessional contributions cap. Ask your employer if you can increase your employer contributions under a ‘salary sacrifice’ arrangement. Alternatively, you can claim a tax deduction for personal contributions you make. Total concessional contributions must not exceed $25,000 per year, although from July 2018 you may be able to carry forward any unused portion of this cap for up to five years.

• Investigate the benefits of a ‘transition to retirement’ (TTR) income stream. This can be combined with a re-contribution strategy that, depending on your marginal tax rate, can give your retirement savings a significant boost.

• Review your investment strategy. A common view is that as we near retirement our investments should be shifted to the conservative end of the risk and return spectrum. However, in an age of low returns and longer life expectancies, some growth assets may be required to provide the returns that will be necessary to support a long and comfortable retirement.

• Make non-concessional contributions. If you have substantial funds outside of super it may be worthwhile transferring them into the concessionally taxed super environment. You can contribute up to $100,000 per year, or $300,000 within a three-year period. A work test applies if you are over 65.

• The 60s is often a time for home downsizing. This can free up some cash to help with retirement. The ‘downsizer contribution’ allows a couple to jointly contribute up to $600,000 to superannuation without it counting towards their non-concessional contributions caps.

Bye-bye tax, hello aged pension?

One reward, just for turning 60, is that any withdrawals from your super account will be tax-free. This applies to both lump sum withdrawals and income stream payments. Depending on the preservation status of your funds you may need to meet a condition of release to access your superannuation.

Based on your date of birth, somewhere between age 65 and 67 you’ll reach age pension age. The age pension is subject to both an assets test and an income test and some advanced planning can boost your eligibility for the pension. For example, the family home is exempt from the assets test. Releasing cash by downsizing may reduce your eligibility for the age pension.

Get it right

This important decade is when you will make the key decisions that will determine your quality of life in retirement. Those decisions are both numerous and complex.

Quality, knowledgeable advice is critical, and wherever you are on your path to retirement, now is always the best time to talk to your licensed financial adviser.

Call Leenane Templeton and book in to see one of our adviser to discuss your current status and future outlook.  Call (02) 4926 2300 or contact us. 

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To help you understand how this may affect you, we’ve summed up the key highlights below.

Super Guarantee increase to be deferred for two years

The next increase in the superannuation guarantee (SG) rate to 9.5% will be deferred for two years. The minimum SG rate will still increase gradually to 12% pa.

Key measures of Mineral Resource Rent Tax to be repealed

A range of measures relating to the Mineral Resource Rent Tax that were legislated during the previous Government’s tenure will be revoked. This includes the low income super contribution, income support bonus and schoolkids bonus.

• Low income super contribution – currently provides a refund of up to $500 in contributions tax paid by lower income earners.
• Income support bonus – a tax-free payment made twice a year to help people on certain income support payments deal with rising costs.
• Schoolkids bonus – paid to families to help them meet the cost of certain education related expenses.

Personal tax cuts for 2015 will not proceed

This means that the tax-free threshold will remain at $18,200, and the second personal marginal tax rate will remain at 32.5%.

Changes to payment of Paid Parental Leave

Benefits from the Government’s Paid Parental Leave Scheme will generally be paid by the Department of Human Services, and not the person’s employer. The only exception will be if the employer opts in and the employee agrees to be paid by their employer.

Deeming will be extended to certain income streams from 1 January 2015

This means that the income assessed by Centrelink from certain income streams will be based on a predetermined formula, in the same way as term deposits and other financial investments.

No tax on pension earnings over $100,000

The 15% tax that was proposed to apply from 1 July 2014 to earnings exceeding $100,000 from assets supporting superannuation pensions will not proceed.

This is published by Leenane Templeton Wealth Management Pty Ltd.  The information contained in this is based on our interpretations of announced superannuation and taxation reforms as at 17 December 2013. Any advice in this communication has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on any advice in this communication, consider whether it is appropriate to your objectives, financial situation and needs.

Disclaimer

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Failing to meet superannuation obligations will generate significant penalties for employers. In addition to interest and administrative penalties, employers lose the tax deduction that would normally be available for superannuation payments made on time.

The total cost to businesses found to have underpaid their super or paid it late can be substantial. The ATO has no discretion to waive or reduce these penalties.

Recent changes to superannuation legislation also means that company Directors may be held personally liable for any unpaid superannuation contributions and the associated interest and administration charges.

The ATO has regularly undertaken reviews of superannuation in the past.

Penalties have greatly contributed to revenue for the ATO and with the increased resources now to be provided to the ATO by the Government it is likely the number of these reviews will be increased.

Considering the potential financial penalties and increased scrutiny, it is essential that employers take the opportunity to review their internal systems and ensure that superannuation payments are being made correctly, consistently and in a timely manner.

If you are a business owner and are unsure about your Superannuation responsibilities, contact our office today!

Disclaimer

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Doing the right thing for your superannuation also means knowing what not to do. It can be easy to get caught out if you are not aware of specific rules and restrictions. Here are 4 tips to help you make the most of super contributions.

1. Do avoid the 'traps of caps'

Contributions over the caps are taxed at 46.5% for excessive non-concessional contributions. Concessional contributions are taxed at 31.5%. This is in addition to the 15% contributions tax
that has already been paid by the super fund.

Even if you exceed the caps by making an inadvertent error, you will still generally have to pay the higher rate of tax. If you think this can’t happen to you, 65,000 people breached their concessional cap in the 2009-10 financial year, up from 28,000 people the previous year.1

Ensure you keep records of your super contributions so that you don’t risk exceeding the caps.

Contribution caps for 2012-13 and 2013-14

2. Do consider making Non-Lapsing Death Nominations

Don’t assume your superannuation will always go to the beneficiaries nominated in your will. In fact, this may only be the case if your estate receives your super death benefit. To ensure your super fund pays according to your wishes, you may be able to make a Binding Death Benefit Nomination or a Non-Lapsing Death Benefit Nomination, which is also binding.

You should also consider the tax implications, bearing in mind that for tax purposes lump sum payments to dependants are tax-free, but taxable components paid to non-dependants will be subject to tax.

3. Do find out how and when you can access your super

Preservation rules mean you can’t access your super until you meet a condition of release, including:
• retirement on or after preservation age (see table below)
• turning 65
• reaching preservation age and commencing a transition-to-retirement pension
• suffering from a terminal medical condition or being permanently incapacitated
• severe financial hardship as assessed by the trustee or on compassionate grounds as assessed by Centrelink.

The amount you can access may be restricted and subject to conditions.
 

4. Do review your long-term super strategies regularly

It’s important to regularly review your super investment strategy.

Factors such as the effects of inflation, tax and fees on your superannuation account and diversification may change overtime. Spreading your super investments over different asset classes may offer better returns and reduce your investment risk.

While a lower risk strategy may be the safest option, you could be limiting the potential growth of your super balance, particularly if you have plenty of time before you plan to retire.

Please feel free to give Leenane Templeton a call to speak to one of our financial planners to understand what investment options may be appropriate for you.

1 Commonwealth of Australia, Parliamentary Debates, Questions on Notice, Superannuation (Question No 367), Senate, 3 March 2011, (Senator Nick Sherry, Minister representing the Assistant Treasurer, The Hon Bill Shorten MP), Hansard (Proof), pp 102-6, viewed 11 March 2011.

Source: Colonial First State, July 2013

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The following is a summary of the announced changes to superannuation

1. Changes to the tax exemption for earnings on superannuation assets supporting income streams

From 1 July 2014, earnings on assets supporting income streams above $100,000 per year will be taxed at a rate of 15 per cent.  This is in contrast to the current rules where all earnings from assets supporting superannuation income streams are tax-free.  The Government estimates that this measure will only affect 16,000 superannuation members who are estimated to have superannuation balances of $2 million and over.

The Government has said it will ensure that members of defined benefit funds will be equally impacted by this change as members of accumulation funds.  This will be achieved by calculating a notional earnings for each year a defined benefit member is in receipt of a concessionally taxed superannuation pension.

The measure grandfathers the CGT treatment of existing assets supporting income streams until 1 July 2014.  This will cause the CGT treatment of assets supporting income streams to have a three tiered structure over the next 10 years so that for:

• assets that were purchased before 5 April 2013, the reform will only apply to capital gains that accrue after 1 July 2024;
• assets that are purchased from 5 April 2013 to 30 June 2014, individuals will have the choice of applying the reform to the entire capital gain, or only that part that accrues after 1 July 2014; and
• assets that are purchased from 1 July 2014, the reform will apply to the entire capital gain.
   

2.  Increasing the concessional caps for certain superannuation members

The concessional contribution cap will be increased so that:

• From 1 July 2013 taxpayers aged 60 and over will have a $35,000 cap; and
• From 1 July 2014 taxpayers aged 50 and over will have a $35,000 cap.

This will replace the Government’s previous proposal of a higher cap for over 50s with balances under $500,000.  The Government abandoned this proposal due to industry criticism that the proposed measure was too complex and difficult to administer.

The general concessional cap is expected to reach $35,000 by 1 July 2018.

3. Reform of the Excess Contribution Tax treatment of excess concessional contributions.

The new Excess Contribution Tax (ECT) regime for concessional contributions will allow taxpayers that have exceeded their concessional contribution cap after 1 July 2013 to withdraw the excess contribution from their superannuation fund with the excess contribution being taxed at the taxpayer’s marginal rate.   In addition, an interest charge will be levied on the excess contribution to recognise that tax on excess concessional contributions is collected at a later date than normal income tax.

The result of these changes is that an excess concessional contribution will be taxed in the same way that a non-concessional contribution would have been taxed.
 

4. Council of Superannuation Custodians

The Government has proposed to establish a Council of Superannuation Custodians to ensure that future changes to superannuation are consistent with a Charter of Superannuation Adequacy and Sustainability.

The Council will be responsible for assessing future superannuation policy changes against principles of certainty, adequacy, fairness and sustainability.  The Council will provide an annual report to be tabled in Parliament.

5. Extending normal deeming rules to superannuation account based income streams

The Government has proposed to extend the normal deeming rules to superannuation account-based income streams for the purposes of the pension income test.  The Government said this was to ensure all financial investments are assessed fairly and under the same rules. 

From 1 January 2015 the standard pension deeming arrangements will apply to new superannuation account-based income streams assessed under the pension income test rules.

All products held by pensioners before 1 January 2015 will be grandfathered indefinitely and continue to be assessed under the existing rules for the life of the product so no current pensioner will be affected, unless they choose to change products. 
 

6. Extending concessional tax treatment to deferred lifetime annuities

The Government will provide the same concessional tax treatment that superannuation assets supporting superannuation income streams receive for deferred lifetime annuities.  This will apply from 1 July 2014.
 

7. Changes to the arrangements for lost superannuation

The Government will further increase the account balance threshold for lost superannuation to be held by the Australian Taxation Office to $2,500 from 31 December 2015, and to $3,000 from 31 December 2016.
How can we help?
 

If you would like some assistance with identifying how these recent changes are likely to affect your own superannuation, please feel free to give us a call to arrange a time to meet so that we can discuss their impact on your particular circumstances. We can then determine whether you need to make any changes to your existing arrangements. Contact our team

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Unlike the previous surcharge, this will affect high income earners who earn more than $300,000. This will increase the take on their contributions from 15% to 30%.  We understand that in calculating the $300,000 it will take into consideration, your taxable income, reportable fringe benefits, and concessional contributions. For a husband and wife couple this has the potential to be a $15k per year tax increase.

It is unclear when this is likely to commence but we will find out more on the 8th May on handing down of the federal budget.

Planning Opportunity.

If you are a small business person it is not unusual for you to exceed the $300,000 threshold, in particular if your are selling a business or drawing out large dividends. This therefore presents an enormous opportunity to plan in advance. So please pre-book a meeting / call to talk with us after 8 May once we have more details to hand, email: success@leenanetempleton.com.au

Call Newcastle Financial Advisors today. 

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Reduction in concessional contribution cap.

Low income superannuation contributions

Government co-contributions to reduce

No change in minimum pension payments

Carbon tax – Government's payments

• the maximum taxable income that can be received tax-free from a superannuation pension by people aged 55-59 will increase by approximately $1,500 to $49,753 pa
• the effective tax-free threshold on ordinary (non-pension) income will increase from $16,000 to $20,542 pa.

• Newcastle Financial Advice
• Self Managed Super
• Newcastle Accountants

Superannuation Advice?

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Most of the information we use in discussing longevity comes from actuarial life span projection tables which are commonly used by life insurance companies in determining costs for particular policies.

There have been some interesting discussions in recent press articles following predictions made by American futurist Ray Kuzweil, a very successful inventor and businessman  and recipient of many awards for technological development, including the first text-to-speech synthesisor (1975),  the first print-to speech reading machine for the blind (1976)  the first music synthesisor capable of recreating multiple musical instruments (1984), among many other inventions relating to artificial intelligence.  Ray, a MIT Computer Science graduate, who has been awarded many honorary doctorates, has written several books and is no slouch when it come to predicting technological change. 

In recent times one of his predictions, as espoused in his book, Fantastic Voyage: Live Long Enough to Live Forever (2004), has been creating much discussion on social media sites.  It is his idea that by 2030 biomedic technology will have advanced to the point where it will be possible to halt the body's ageing process.  He believes that tiny robots the size of red blood cells will patrol our circulatory systems and rejuvenate tired cells.  Then by about 2050 he predicts that we should be able to reverse-engineer a human brain and brain and upload it into a robot. People willing to give up their "wet" bodies, we are 50% – 60% water,  could not only live forever but also think at electronic speeds. 

Whilst to many of us this may seem far-fetched and not achievable, from a  social perspective it would appear that within a few decades longevity may become quite unpredictable if technological improvements become ever more exponential.  There will always be early adopters of technology, and Australians have historically been early adopters, however there would be significant implications for governments as well, especially as our expectations rise along with the costs of the technology.

Similarly, society may need to embrace a definition of retirement that is perhaps based on disability rather than age.

From a superannuation and retirement perspective these changes need to be factored into long-term planning, particularly as there is already clear evidence of significant improvements to health, lifestyles and longevity.  An inter-generational self-managed superannuation fund will be a tool to assist you with longevity and meeting your long-term living needs.

For longevity and retirement advice speak with our award winning Newcastle Financial advisor  Andrew Frith.

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