Confused About Superannuation? Here is the breakdown | The young witness
Over the past week, I have made three presentations to separate groups of retirees, and from the questions posed, it is evident that many are still confused about the retirement pension. So here’s a quick rundown, incorporating answers to many of their questions.
First of all, the good news: there is no limit to how much your retirement pension can reach. However, there are contribution limits both by amount and by age.
Anyone can contribute to the retirement pension up to age 67, but after that the contributor must pass a work test, which involves working 40 hours on 30 consecutive days in the year the contribution is made.
The May 2021 budget proposed to remove the working test for non-concessional contributions, effective July 1, 2022. Once you reach age 75, no further contributions are allowed, except for mandatory employer contributions. .
Tax deductible contributions are limited to $ 25,000 per year and increase to $ 27,500 on July 1 due to indexation. These “concessional contributions” include contributions from all sources, including the compulsory employer contribution.
There is a 15 percent entry tax on these contributions, which rises to 30 percent for anyone whose adjusted taxable income (including foregone employee contributions) is greater than $ 250,000.
Non-deductible or “non-concessional” contributions come from after-tax dollars and are now limited to $ 100,000 per year, reaching $ 110,000 as of July 1.
There is no head tax on these contributions, but no non-concessional contribution can be made if your retirement balance as of June 30 of last year exceeded $ 1.6 million ($ 1.7 million). dollars from July 1).
Depending on your age, past contributions, and total super balance, it may be possible to contribute up to $ 330,000 in one payment using the “report” rules.
The greatest confusion revealed by the audience of my seminar concerned the limit of the transfer balance. This limits the amount you can transfer to pension mode from accumulation mode.
The cap is currently $ 1.6 million, rising to $ 1.7 million on July 1. Once you have used your transfer balance cap, no more money can be transferred in pension mode. But once the money is in retirement mode, there is no limit to what it can achieve.
For example, if you transfer $ 1.6 million into retirement mode and the fund had a 20 percent year, you might end up with $ 1,920,000 in retirement mode.
Once you are in pension mode, you are required to receive a minimum pension amount each year – this increases with age. For example, it is 4% if you are under 65 and 9% if you are between 85 and 89 years old.
These numbers have been temporarily halved due to COVID-19 and its effects on the market – so the minimum requirement will be 2% and 4.5% for the next fiscal year.
Centrelink’s treatment of retirement pensions confuses many people. Basically, your retirement pension is not assessed for pension eligibility until you reach retirement age.
It is quite common for someone who has reached retirement age to have a younger partner, in which case it may be possible for the older partner to maximize their Centrelink eligibility by having as much retirement pension as possible on behalf of the younger partner.
The exception is when the fund is converted to repo mode – it is then valued immediately. So, if you have a younger partner, it may be better to keep the family pension in that person’s name and let them make lump sum withdrawals if necessary once they reach the age of preservation.
Superannuation can also be a great tool to reduce capital gains tax (CGT). Indeed, the CGT is assessed by adding the gain to your taxable income in the year of sale.
A tax-deductible contribution in your super up to $ 27,500 can reduce your taxable income to a lower tax bracket, where the CGT would be much less. There are also deferral provisions that can be used (conditions apply). Just be sure to take advice in this area. It’s easy to get it wrong.
Noel answers your questions about money
I have shares in a number of companies listed on the Australian Stock Exchange. The board of directors of one of them is calling for a new issue of shares to fund a project that should be pretty good.
If I do nothing, and ignore the outcome of the transaction, will my shares be automatically depreciated simply because my percentage of shareholding will be lower? I hope you can enlighten me on that, please. Can you also explain the differences between institutional, professional and sophisticated investors.
If the company increases the shares on issue and you have not exercised your right, the shares you own would represent a lesser proportion of the issued capital of the company.
New issues of shares are usually sold at a ‘discount’ from the current share price (the discount can be between 5 and 25% or more below the current price, depending on the desperate need of the company. for money), so that people accepting the offer get a “free spin” at the expense of existing shareholders.
However, if you think the outlook is good, it would make sense to raise the question.
An institutional investor is a large fund such as an industrial or retail pension fund and a professional investor is a person who owns or controls gross (personal) assets of at least $ 10 million, or who holds an Australian Financial Services License. To be considered a sophisticated investor, your accountant must certify that you have earned income of $ 250,000 or more per year for the past two years or that you have net assets of at least $ 2.5 million.
We were appalled to find that DVA and Centrelink have different rules regarding rental properties compared to ATO. We received a letter from DVA stating that the loss on a rental property could not offset a profit on a second rental property. Ownership in deficit only counts as zero income.
We have two investment properties, both highly specialized. One won $ 20,000, the other lost about $ 10,000. The profit was counted but not the loss, so we took $ 9,000 out of our pension.
I don’t think it’s public knowledge or fair or equitable. I don’t know if you could put some light on it like someone needs it. I wrote to the ATO and got no response.
A spokesperson for the Department of Veterans Affairs points out that our social security and tax systems have different purposes and are covered by separate legislation. For DVA and social security purposes, net income from rental property is treated broadly in the same way as taxable income, with a few exceptions.
An exception is that losses from one rental property cannot be offset against income from another property. If a property’s net income is a negative amount, the income for DVA and Social Security means that property’s test purposes are zero.
This is to ensure that the social safety net, including the DVA seniority pension, is targeted to those who need it most. There are many other cases where taxable income does not match Social Security. For example, if a retiree realizes a taxable capital gain, that gain would be subject to income tax but would not be taken into account by Centrelink for the income test.
My gross income is $ 60,000 and I sacrifice my salary in Super to reduce my taxable income to $ 37,000. If I also contribute $ 1,000 after taxes to my Super, am I eligible for the government co-contribution of $ 500?
The eligibility of income for the co-contribution is based on the adjusted taxable income which includes the contributions sacrificed on the salary. The threshold is $ 54,837, which is less than your gross salary of $ 60,000 – you would not be eligible for co-contribution.
- Noel Whittaker is the author of Retirement Made Simple and many other books on personal finance. Email: [email protected]