Despite Drawbacks Super Gives Dream Run

Written By Russell Tym, Authorised Representative of MoneyLink Financial Planning, AFSL No 247360

A generation ago government policy gave little encouragement to save for retirement. It didn’t need to. Back then everyone knew it was essential. The 1970’s retirees remembered the Depression clearly.

In the seventies people claiming a pension in retirement were pitied. There was a social stigma attached to being unable to provide for yourself. The age pension wasn’t even asset tested as few people applied for it unless they had no other option.

Now government policy provides major incentives to save for retirement rather than relying on the pension. In fact those prepared to use superannuation to its full potential get a dream run with big tax concessions all through life.

Most workers think of superannuation merely as money the boss has to pay for them that they may never actually receive. Yet there is far more to it than that.

We can make contributions into super from pre-tax income with only 15 per cent tax applying. This is lower than all personal tax rates if the Medicare levy is included.

Most workers pay 31.5 per cent marginal rate including the levy so being able to siphon money off and have it taxed at only 15 per cent is a real bonus.

The 15 per cent surcharge on high income earner contributions was abolished last June. Employees can put money into super from pre-tax earnings by way of salary sacrifice, while the self-employed can do it via deductible contributions.

The Government will also help low income workers unable to put much into super voluntarily. If they earn less than $28,000 per annum and contribute $1,000 from after-tax pay, the Government will add $1,500 to it.

Those earning up to $58,000 annually or contributing less will receive a partial co-contribution payment.

The Government’s newest concession is called superannuation splitting. From January 1st this year it allows people to transfer part or all of their contributions to their spouse’s super account. This will help families with one partner earning a higher income and one on a low wage.

The higher earner naturally accumulates the bigger super balance. This can now be evened up over coming years so both have similar retirement amounts.

High earners can now salary sacrifice to move income from the 48.5 per cent tax area to 15 per cent, then switch the savings to the low earning spouse’s super account long term.

The earnings of superannuation funds are taxed at a maximum of 15 per cent, allowing them to build up faster.

Super balances are also exempt from Centrelink assessment up to pension age so if you suffer a serious illness or disability your super won’t stop you receiving a benefit.

The Government is generous with the maximum amounts it allows people to accumulate in super at retirement. The upper limits are $648,946 if you take your super as a lump sum or cashable pension, or $1,297,886 if you put half your super into a non-cashable pension.

Super splitting will also allow people with very high incomes to remain below these figures and avoid excess benefits tax by channeling money to their partner’s super account instead of their own.

The Tax Office now allows people to withdraw part of their super at retirement and re-contribute it to super so as to increase the tax-free portion of their retirement income streams. The taxable portion of incomes is also allowed a 15 per cent tax credit, making it very lowly taxed.

There is now also a more user friendly ‘non-cashable pension’ called a term allocated pension. The retiree can control how the money is invested and the residual balance passes to their beneficiaries on death.

The big drawback with super is that it is inaccessible. If you can tolerate that it really does give a dream run all the way through a working life and beyond.

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