In my experience, superannuation is not well understood by most Australian’s and pre-conceived views are mostly way off the mark.

The return on superannuation is determined by how the underlying assets are invested.

If a fund is invested in cash or bank deposits, then the return will be the interest rates at the time less 15% tax on the fund earnings.

Similarly, if invested in growth assets such as shares, then the return will vary according to the value of the portfolio of shares.

If a superannuation fund held a parcel of growth assets and a non- superannuation fund held the same assets, their return is identical. All that varies is the tax charged either at 15% (less rebates) for the superannuation fund verses the marginal tax rate that an individual investor is liable for on the earnings of the matching investment portfolio.

The other variable is the category of contributions when money is placed to superannuation.

If deposited by an employer or as a personal deductible contribution, 15% contribution tax is deducted by the fund on behalf of the Australian Tax Office but if no deduction is claimed ( non-concessional) then no contribution tax is payable.

The limit for employer or personal deductible contribution remains $25,000 per annum.

However, this leads me to the opportunities from recent changes to contribution eligibility that affects non- concessional or un-deducted contributions. 

Age Pension Age Qualification

Period within which a person was bornPension age
From 1 July 1952 to 31 December 195365 years and 6 months
From 1 January 1954 to 30 June 195566 years
From 1 July 1955 to 31 December 195666 years and 6 months
From 1 January 1957 onwards67 years

Money held in superannuation in accumulation ( not a pension fund) is not counted when determining Centrelink entitlements.

Prior to 1st July 2020, to contribute to superannuation after age 65, a work test applied where the contributor needed to validate that they worked for a minimum of 40 hours in a 30 day period when the contribution was made.

Now contributions can be made regardless of employment up to age 67 which in effect aligns more closely to the age pension qualification.

This can be a useful strategy when there is an age gap for a couple, to place superannuation in the name of the person not yet age pension age, which may entitle the older member of the couple, increased entitlements.

The change also extends the bring forward rules.

What does this mean and what are the benefits? 

Extending the Bring Forward rule allows retirees aged 65 and 66 to make up to three years’ worth of voluntary after-tax (non-concessional) contributions to their super, to a maximum of $300,000, as long as no additional after-tax contributions are made in the two years after that.

This means that retirees can make a final top-up to their super, and enjoy the tax benefits on their investment in retirement. They may also be eligible for a government co-contribution.

This can be a useful strategy, when an existing fund is dominated by a taxable component, from accumulated employer contributions or personal deductible contributions.

Upon the death of a superannuation or pension fund member, if that taxable component passes to a non- financial dependent, then death benefit tax of 15% plus any applicable medicare levy  applies.

By either drawing out the proceeds and re-contributing or using the bring forward rule, the taxable components are either eliminated or at the very least diluted, thus potentially saving tax.

It is preferable to keep those non-concessional contributions in a separate fund which allows better management of the fund that holds the taxable funds.

This is achieved by withdrawals or taking a larger pension income from those funds with the aim of having the proceeds extinguished before the member passes away. 

The message is, yes it can get complicated, so getting advice is recommended. 

Alan Tickle

Your Heritage Financial Planning Pty Ltd(330480) Authorised representatives of Alliance Wealth ABN 493161647006 AFSL 449221 

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