Super can be a little confusing. For the past three years, every Friday night at 8 pm on Sky News Business I am the recipient of many similar questions on how much you can contribute to super and how you can access your superannuation savings.
The problem is successive governments have been making consistent changes to superannuation, which according to recent surveys has been disenfranchising consumers and confusing them. The outcome is that people can become cynical about a system that has ironically been established to allow low tax rates on investments and savings to boost retirement benefits for Australians so they don’t have to rely on the age pension.
Valuing your super
By contributing to super, you can save thousands of dollars a year in tax while boosting your retirement prospects so you won’t have to rely on the age pension. In fact, presently you can put up to $25,000 per annum ($30,000 from June 30) into super and pay just 15 per cent on those contributions, such as salary sacrifice and your employer super guarantee amounts of 9.25 per cent of your salary. If you’re over 60, you can increase this to $35,000 p.a.
By contributing to super, you can save thousands of dollars a year in tax. On top of your concessional contributions, you can also simultaneously make non-concessional contributions. These are limited to $150,000 per annum and no tax is taken from these amounts. You can average these over three years by making a $450,000 contribution and then nothing more for the subsequent two years. These contributions may consist of money you have saved in the bank, proceeds from the sale of an asset or an inheritance or another possible source.
You may want to make these contributions to super as the income on the money invested will attract a lower rate of tax inside super as well as lower capital gains tax. It can also be used to create a pension in retirement to fund your lifestyle expenses when you stop working.
Accessing your super
As discussed above, you can only access your super if you reach a condition of release such as retirement over 55 (moving to 60 if you’re born after July 1964), age 65 (working or not), disablement, death or financial hardship, to name a few. You’re not allowed to access your super without meeting a condition of release and stiff penalties apply. You cannot use it to pay off credit cards or your regular bills unless you apply for dispensation under financial hardship.
Most people wanting access to super are looking to retire, and the best form of income is via an account-based pension. An account-based pension is simply an income stream established from your invested superannuation funds. You have to draw a minimum amount each year of 4 per cent (age 55-64) of your account balance at July 1 (or at the date you commence the pension) and if you are over 60 you will pay no income tax on the amount you draw out if you are over 60 you will pay no income tax on the amount you draw out. There is no maximum annual amount and your invested funds will also be free from earnings tax and capital gains tax – it’s a lovely environment in which to invest!
If you are over 55 and still working you can set up a transition to retirement pension, allowing you to draw income from your super on a concessional taxed basis. You can therefore facilitate larger contributions, such as salary sacrifice, to reduce your income tax and boost your retirement savings. Again, you have a minimum of 4 per cent you must draw down and you have a maximum amount of 10 per cent of your account balance that you can draw each year. Transition to retirement is ideal for those working part-time or those looking to top up their super before retirement.
As with all facets of superannuation, get great advice before doing anything and remember there’s no such thing as a silly question when it comes to your super!
The tax related information contained in this is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice or tax advice. You should seek independent professional tax advice before making any decision based on this information.