FINANCIAL PLANNING SOLUTIONS

SUPERANNUATION

WHY IS SUPER SO IMPORTANT?

 

You might think of super as just a percentage of your salary that you can't access. But it's important to remember – it's your money, it's just being held for you until you retire. The main idea behind superannuation is to help you build a nest egg which you then use to create an income in retirement (or semi-retirement).

 

WHY DO I NEED SUPER?

 

Our population is ageing rapidly and the Age Pension may not be enough.

Super is compulsory for employees. Superannuation Guarantee (SG) contributions were introduced to help us take control of our retirement.

The AMP Superannuation Adequacy Index (June 2009) found that more than 40% of workers – more than four million people – will not have enough money in retirement.

SG contributions over 40 years will provide you with just over half of your pre-retirement income.

Will this be enough? We think you need 65% of your pre-retirement income to retire comfortably. The best place to start is to ask 'How much do I need?

The next step is to use our AMP super simulator to see how you're tracking and determine what strategies you can use to reach your goals.

 

MAKING A CONTRIBUTION

 

Deposits into super are known as 'contributions'.

There are two types of contributions. They can be made from your:

 

• pre-tax income (concessional contributions) and
• post-tax income (non-concessional contributions).
  
  

Generally, concessional contributions (made from pre-tax income) attract a contributions tax of 15% (30% if you earn over $300,000 pa), which can be significantly lower than your marginal tax rate. There is no contributions tax on non-concessional contributions.

There are caps on both types of contributions, some which vary depending on your age.

 

BENEFITS

• Earnings in super are taxed at up to 15% (and only 10% on capital gains), which is lower than most people's marginal tax rate. If you start a pension at retirement then the tax on earnings in super reduces to nil.
• If you withdraw your super after age 60 your withdrawal is tax free (where paid from a taxed superannuation fund).
• You can access your super when you reach your preservation age and meet a condition of release. Preservation age varies depending on your date of birth, and by 2025 everyone will have a preservation age of 60.
• There are different tax treatments on lump sum payments depending on the size of the benefit and the age and tax components of the benefit.
• Contributions made after July 1999 are fully preserved, which means it can't be accessed until you reach your preservation age.

 

MORE FLEXIBILITY

Super is becoming more flexible with more strategies and ways to reach your retirement goals:

 

• The government's co-contribution scheme is designed to help low to middle income earners get more into their super.
• Concessional contributions can be used to reduce your tax.
• A transition to retirement strategy means you can still work full time or part time after your preservation age, access up to 10 per cent of your super, and still be able to contribute to your super.
• Self-managed super funds allow you to take even more control of your super.

 

HOW TAX-EFFECTIVE IS SUPER?

For most people, saving through super can be much more tax effective than saving the same amount outside super. Firstly, any contributions your employer makes (up to a certain limit) and any returns on your super are taxed at a maximum of 15%, rather than your marginal tax rate which could be as high as 46.5%.

​Additional spouse contributionsIf you even out the super contributions between yourself and your spouse you may save in tax when you convert your super into a pension.Access your super while still workingIf you're over 55 and working part time you can now access up to 10 per cent of your super in the form of a pre-retirement pension and still be able to contribute to super.Super splitting with your spouseIf your spouse earns less than $10,800 and you add to their super you could receive a tax rebate of up to $540.Salary sacrificeIf you arrange for contributions to be made to superannuation from pre-taxed salary above the superannuation guarantee payments contributed by your employer, you will pay a maximum 15% tax (30% if earning over $300,000 pa) on the extra contributions rather than your marginal tax rate (up to a certain limit or cap).Co-contributionsIf you earn less than $48,516 and make additional contributions to your super, the government could match 50% of your contribution (up to $500).Small business capital gains tax (CGT) concessionsIf you own a small business, the proceeds of the sale of certain assets may be contributed to super so you can minimise CGT as well as maximise your retirement savings. A lifetime limit of $1.315 million applies to these amounts.Roll your super over into an allocated pension when your retireIf you use your super to start an 'allocated pension' (also known as an 'account based' pension) rather than cash it in, you can save tax on the lump sum (if under age 60). Another benefit is that the returns on your allocated pension are not taxed.Pension payments and withdrawals over 60If you are 60 or over your pension payments and lump sum withdrawals are not subject to tax where paid from a taxed superannuation fund.