Superannuation rules in Australia have undergone some fairly dramatic changes as of the 1st July 2017. With that threshold date now behind us, let’s consider what this new world looks like..
Superannuation is simple
Yes, it truly is. Super for most people will be the least difficult, most rewarding and less stressful area of their entire financial lives. When compared to saving a gazillion dollars and borrowing a trillion dollars more to buy one single, outrageously expensive asset that is the family home, super is a breeze. How about cars? For those in the know, cars can be a source of fascination, weekend time-eater, fascinating hobby and a social activity. For all the rest of us, it’s a case of navigating the purchase of a vehicle of unknown true cost or value, that’s expensive to purchase, maintain and replace and with a sale value that seems to move a far as a Broome tide. For millions of Australian’s superannuation will be something they know of but don’t really care about – right up to the point where it’s incredibly worthwhile and about to pay a regular income to help tide over your retirement years.Millions of Australian super fund members are disenchanted (“disengaged” is the industry word) with anything to do with super, and as their employer is the one making payments, they happily ignore the issue completely. And guess what? For all those disengaged, disenfranchised members, there are a horde of professional people who spend their entire working lives trying to get the best outcome they possibly can for that super fund member. Crazy! Where else does in purchase-land does that happen?
Superannuation rules are easy
They really are! For most people, that is…At the fringe, super rules are opaque, Byzantine and ridiculously complex – but not for most people. For most people, it’s a doddle. With the new financial year on us, here are some of the basics that really are quite straight forward – along with a large assortment of “just remember”, “definitely don’t” and “you’ll regret it” warnings, disclaimers and disclosures at the end of this post (just to keep it real)…
- If you are over age 18, you can claim up to $25,000 of super contributions as a tax deduction. If your employer is making contributions for you then you can pay and claim the balance up to the limit of $25,000 for the 2017/18 financial year.
- Sure, you can claim up to $25,000 of superannuation contributions as a tax deduction but more importantly, you don’t have to make that payment through your employer! People with a mix of jobs and self-employment can finally get to the maximum superannuation tax deduction level! Woohooo!
- There’s a great guide for employees making personally tax deductible contributions in 2017/18 available on a very reliable website to be found here.
- There’s a quirk for members of the old constitutionally-protected Government Employees Super Board (“GESB”) fund that’s called the West State Super Fund – you are able to salary package most, if not all or your salary into your super this year, so the whole amount is a tax deduction. There’s rules for this and that but if you qualify then it can be a great way of boosting your superannuation balance. For those who may qualify, see the GESB website here.
- You can pay up to $100,000 extra into your super each year, so long as you don’t claim a tax deduction (it’s basically your own after-tax money)
- The ATO website includes lots and lots and lots of detail, so grab a warm brew and head over to their website link on non-concessional contributions.
- You can have your super fund pay for your life insurance, so your family and dependents have money that you aren’t around any longer to provide them with.
- Some super funds offer insurance without medical questions – it can be extremely cheap and helpful but we wary of what is or is not covered.
- If you die, your life insurance is paid out to your spouse and/or your dependents tax-free
- The ATO again has a great information page on the various ways super funds can pay out insurance benefits and how that works to be found here.
- Your money in super pays a maximum of 15% tax on income and 10% on realised capital gains
- The government-run MoneySmart website includes some basic information and links for more detail on super and tax including this page found here
- You have a large range of choice as to how you can invest your money in that low-tax environment over all of those years
- You cannot touch your money until you have retired at sometime on or past your retirement age. That’s actually one of the biggest benefits of super, as it means compounding can do its job, meaning you benefit from the longer term gains that accumulate over time
- If you live and make it to age 60, your super benefits become free of tax!
- You can hold a fairly large chunk of money in your super/pension account and still qualify for a part pension under the Age Pension tests
- If your super/pension balance runs down a little in retirement, the Age Pension can cut in to help provide a bit of extra income
- You are able to retire with $1,600,000 and have that money all working for you, tax-free. Tax-free income and tax-free earnings. That’s huge!
- If you are lucky or fortunate enough to accumulate more than $1,600,000 you can still keep it in a low-tax superannuation environment. Yay!
Superannuation rules are insaneYes, they truly can be. At the edges, the rules become so complex and so ridiculously convoluted that you will have to engage the help of a financial planner somewhere. That’s a pity really because it’d be great if it were all easy. But Australia is subject to the same rules of Economics 101 as everyone else – unlimited wants in a world of limited resources. So there are limits to this and limits to that. You can’t do this superannuation step but you can do that superannuation whizz-kid manoeuvre. This is the world i live in, and i often wish it were not necessary to have to navigate such strange waters – but it is. And behind all of the angst and worry, there is the almost-comfortable knowledge that the difficulty is usually a result of having lots of money. Or at least, lots more money than most. So being well-off has a cost. Right up to that point though, it’s a pretty good ride for the bulk of Australians.
So from the world of Superannuation – Happy New Year!
- MoneySmart – a website operated by a government regulator – ASIC. Great information, even if i don’t agree with everything on it!
- Australian Taxation Office – the government money-collector that Australians hold a love-hate relationship with. Fantastic and authoritative website.
- Superguide – a commercial website that offers a wealth of information on superannuation and its rules, regulations and impacts
Superannuation Warnings, Disclaimers & Disclosures
- You must not make a financial decision based on this post, as you could be one of the people for whom the superannuation rules are not so simple.
- Definitely don’t make a super payment without checking to make sure you are one of the folk for whom everything is simple!
- Salary sacrifice contributions must be arranged in advance, with agreements to deal with money not yet accumulating to you – so don’t think you can just get your employer to dump a bucket of money into your super at the end of the financial year to help get you to the maximum!
- GESB West State is an older type superannuation fund, with its very own set of rules and regulations and quirks. It’s not a place for the unwary but if properly investigated, it offers incredible benefits for accumulating super – especially in your later working years.
- Superannuation is primarily a low-tax vehicle. It’s not the answer to every financial situation – so don’t let anyone convince you that it is!!!!!!
- Nothing – and i really mean NOTHING on this website is to be taken to be personal financial advice. It is general advice on a factual nature. You must not make a financial decision or take action to implement any strategy or product idea on this site without first undertaking suitable investigation into its appropriateness to your personal financial situation and circumstances.
- Super rules change. They generally change for the benefit of keeping the overall superannuation system balanced and “fair” but that’s an ongoing job, and protecting existing super member plans and balances means that there will be a huge list of grandfathering dates and limits which can change regularly. Make sure you check that rules are current before taking any action!
- While i am suggesting in this post that super rules are simple, it is only true for the majority of Australians. That still leaves many millions of Australians for whom the super rules are definitely NOT simple. So check everything before you take action – the rules of superannuation are usually heavily defined in law, and there’s little room for mistakes and usually no room for fixing accidental errors. See a planner, check with your super fund, ask your Accountant (if they are qualified) or do a lot of personal investigation.
- I’m a financial planner and a partner-owner of a boutique planning business. Our business operates under two main service models, and this includes legacy payments based on commission, brokerage and the like. So make the assumption that i am biased, non-independent and whatever else that may incline your assumptions towards
- As a financial planner, i should be telling you that superannuation is complex and difficult and you really need professional help. While that is certainly true at some levels, for most people super is quite straight-forward. Super funds have become much better at helping their members answer simple questions, and that’s a great outcome for everyone.
- For my musings on bias, independence, and how this impacts superannuation and financial planning, see these earlier posts..