Superannuation Discussion + market volatility

[Pushka]

Yes there is a tax deduction possibility up to a $25,000 figure but problems if you exceed that figure in 2018. Talk to your accountant/financial advisor about this.

I’ve wondered about this a lot. What happens when your SG is already above the limit imposed by ATO. They can’t fine you as you’ve no choice.
This limit imposed by Turnbull is one reason why I might turn. Just when our business can afford it, and kids are off our hands so we can SS then we are limited to $25k including SG. Hate it when the rules keep changing and it’s a reason why I am ambivalent about Superannuation.

 

[cove]

The only superannuation that will never get touched will be that of our Federal politicians. Many of their pensions have values well in excess of $1.6 million if you used an actuary to calculate value.

 

[JohnK]

So I take it that this extra investment is financially sensible. ie better than investing in a restrictive super account rather than say, shares or real estate?

I still have debt but I think the extra investment in superannuation is worth it as I approach retirement. It's a forced saving and the tax breaks are worth it.

Just hope there aren't any negative return years as the setbacks could be costly.

 

[Deleted member 29185]

I would say that generally investing in super is always better due to the generous tax benefits.

Are there tax benefits on the interest earned? ie, does a super investment pay less tax on interest earned over tax payable on a non-super investments interest?

 

[Pushka]

Super funds generally pay no tax on earnings once in pension mode.

 

[Buzzard]

Like Pushka said but 15% during the accumulation phase.

 

[CaptJCool]

Like Pushka said but 15% during the accumulation phase.

I picture the Monopoly board, and the accumulators buying all the properties, arriving at 60 and then beginning to PROGRESSIVELY sell them off capital gains tax-free......

PS never found A free "get out of jail" unless divorce counts (nor a get out of debt) card and it still costs 100% non-tax deductible to pay domestic rent....

 

[Deleted member 29185]

Like Pushka said but 15% during the accumulation phase.

Accumulation meaning any fund increase (including interest)?

So isn't tax still payable on the interest (presumably15%) for super interest and paid ... annually?

Which I'm thinking non-super investment interest would be at one's marginal tax rate.

 

[JohnM]

Accumulation meaning any fund increase (including interest)?

So isn't tax still payable on the interest (presumably15%) for super interest and paid ... annually?

Which I'm thinking non-super investment interest would be at one's marginal tax rate.

It is important to understand that super has two distinct 'phases' or 'modes': the accumulation phase which precedes (age-threshold) retirement and the pension phase which follows retirement.

At retirement age (really the 'condition of release') (NOT necessarily retirement from actual working), you move all (or most if you wish to continue working - usually about $5K needs to remain in the accumulation account to keep it open) of the funds in the accumulation phase account to a new, separate pension phase account.

(There are some subtleties between ages 55 and 60 regarding the condition of release. Also at age 60 super pension payments become tax free.)

The immediate effect is that earnings within the pension phase account become tax-free, instead of continuing to be taxed at 15% in the accumulation phase (this is why it is good to set up the pension phase account even if you continue to work).

However, once in pension phase, there is a mandatory sliding-scale % drawdown each year as this is deemed to be your self-funded retirement income (or part thereof). But, if you are still working (or if over 65, meeting the 'work test' of 40 hours in any 30-day period), you can contribute up to $25K pa (rigidly enforced) to super (into the accumulation phase account, obviously), with any part of that personally contributed being tax-deductible. (No contributions to super are permitted past age 75). So, it is conceivable that you can be 're-contributing' money from your own super pension payments (that come out of your pension phase account) back into your accumulation account at the same (or different) super fund.

I'm no accountant, financial adviser or such-like but I know what I do. I think the above covers the guts of it but there are plenty of better-qualified people contributing to this thread who can correct, clarify or add to what I've said.

I think that it's essential to get one's head around these fundamentals. Despite all the hand-wringing and whinging by some, the basics are not as complex as the chatter would have you believe - once you get over the initial hump of understanding the essential underlying principles. The key, IMO, is to get to a point where it makes sense. Once that happens, you can work out a strategy that suits your objectives/risk profile/how much time and effort you want to expend and so on. Without that, people can flounder - unnecessarily in my view.

This website may be useful: SuperGuide - Simple superannuation and retirement planning information

 

[burmans]

What happens when your SG is already above the limit imposed by ATO. They can’t fine you as you’ve no choice.

Well I think you'll find they can and will fine you regardless of the reason you breach the limit. e.g. some people have contractual agreements of more than 9.5%.

But actually, SG does have a cap.

The maximum superannuation contribution base (MSCB) for the 2017/2018 year is $52,760 per quarter (entitlement is assessed quarterly), or the equivalent of $211,040 annually. 9.5% of this is less than $25 K.

But personally would rather they paid the money, you still get 51% of it!

 

[Pushka]

Accumulation meaning any fund increase (including interest)?

So isn't tax still payable on the interest (presumably15%) for super interest and paid ... annually?

Which I'm thinking non-super investment interest would be at one's marginal tax rate.

Accumulation phase means no pension being drawn (which is pension phase). We are in accumulation as we still work and SS but we are also drawing down a tax free pension as we are, well, OLD! Plus, if dividends are received the super fund gets that IC returned.

 

[Buzzard]

Very well written @JohnM
Something to add to your post. If you move all your funds into pension phase and open another accumulation fund, be aware of any insurance via super issues.
If insurance is important, the insurance attached to your existing account might be better than what you will get with a new account. It's a trap people can fall into.

 

[RooFlyer]

It is important to understand that super has two distinct 'phases' or 'modes': the accumulation phase which precedes (age-threshold) retirement and the pension phase which follows retirement.
<snip for space>

Great summary JohnM. I will, with some caution, add that the 'accumulation' and 'pension' phase accounts are just accounting bookwork - they aren't, for instance, separate bank or portfolio accounts.

And there is an 'in between' phase between accumulation and pension, which is 'transition to retirement', where you continue working but are allowed to access some super. I never got my mind around that, as I've decided to go straight to retirement.

 

[JohnM]

Great summary JohnM. I will, with some caution, add that the 'accumulation' and 'pension' phase accounts are just accounting bookwork - they aren't, for instance, separate bank or portfolio accounts.

I'm not so sure about that. Without checking, I think it is possible to set a different investment mix in each account. That alone would indicate that they are two separate things - generally (but not necessarily) with the same super fund - just like having 'savings', 'everyday', 'bonus saver' etc. accounts under your general identity at a bank.

 

[RooFlyer]

I'm not so sure about that. Without checking, I think it is possible to set a different investment mix in each account. That alone would indicate that they are two separate things - generally (but not necessarily) with the same super fund - just like having 'savings', 'everyday', 'bonus saver' etc. accounts under your general identity at a bank.

Oh yes, agree with that. But the various elements of your overall Super portfolio don't move anywhere - the value of shares there just get accounted into fund A, together with that cash; the unit trust can get accounted into fund B. etc. What I meant was that you physically don't need to 'move' the investments anywhere.

 

[Deleted member 29185]

It is important to understand that super has two distinct 'phases' or 'modes': the accumulation phase which precedes (age-threshold) retirement and the pension phase which follows retirement.

This website may be useful: SuperGuide - Simple superannuation and retirement planning information

Thanks for such a detailed reply. That actually cleared up a lot of my questions. I'm busy checking a number of things at the moment.

 

[Jacques Vert]

(There are some subtleties between ages 55 and 60 regarding the condition of release. Also at age 60 super pension payments become tax free.)

The immediate effect is that earnings within the pension phase account become tax-free, instead of continuing to be taxed at 15% in the accumulation phase (this is why it is good to set up the pension phase account even if you continue to work).

This website may be useful: SuperGuide - Simple superannuation and retirement planning information

There are indeed some subtleties between ages 55, 60 and 65. Both in relation to whether you have retired and in relation to tax. Remember that "retirement" for superannuation purposes is not necessarily what most of us think "retired" actually means.

Following the Turnbull/Morrison amendments, the earnings on a Transition to Retirement pension are taxed at the 15% rate until you meet a condition of release. This means that those who start a pension while still working will find the earnings on the assets underpinning that (Transition to Retirement) pension will be taxed until a condition of release is met.

What constitutes a condition of release is different between the ages of 55 to 60, and between 60 an 65, So without getting into the fine detail, I too recommend reading Trish Power's SuperGuide to develop a basic understanding. Then, get good technical advice before doing anything.

 

[Buzzard]

When I went from accumulation to pension phase, I stayed with the same super fund. However, I had to effectively close the accumulation account, received an exit statement and choose my pension fund investment options. I was given a new account number and had create a new log in. I also had to choose a withdrawal %, minimum 4.

 

[JohnM]

When I went from accumulation to pension phase, I stayed with the same super fund. However, I had to effectively close the accumulation account, received an exit statement and choose my pension fund investment options. I was given a new account number and had create a new log in. I also had to choose a withdrawal %, minimum 4.

I'm puzzled as to what you mean by 'effectively close' and why. If you anticipate doing no paid work at all in the future, then I understand - and that would be your choice to keep things simple. But it does convey an impression that there was some requirement to close the accumulation account.

With one of my super funds, at a condition of release point, I just opened a pension account, selected my investment options and transferred all but $5K from the accumulation account into it. I wanted to keep the accumulation account open as I still do some work (nothing that interferes with travel, mind you) in a mixture of wages or self-employed.

Prior to the recent changes, in order to be able to contribute the maximum allowed ($35K pa for my age last year) and claim it as a tax deduction, meant being self-employed. That's where an ABN, and the capacity to get some consultancy work, in retirement had very good benefits.

Now, even though the maximum contribution has been dropped to $25K pa, the requirement to be self-employed before making tax-deductible contributions to raise contributions to the contribution threshold has been (very fairly IMO) dropped. So now I don't worry about any consultancy work, do enough casual work to meet the work test (minimum 40 hours in any 30 day period as I'm over 65) in a business where I have particular relevant skills.

The small amount I earn there, plus any SG that may accrue, gets 100% salary sacrificed into super. Come mid-June, I total what I've earned from work, take it off $25K and plonk the difference into super and claim the tax deduction. Obviously some other personal circumstances come into play in whether that is a relevant strategy for others.

 

[JohnK]

I picture the Monopoly board, and the accumulators buying all the properties, arriving at 60 and then beginning to PROGRESSIVELY sell them off capital gains tax-free......

I didn't think it was possible to avoid capital gains tax.

Silly question just for interest sake. Does an inheritor also inherit capital gains tax if the property was always an investment property before inheriting?