Demystifying Self-Managed Superfunds, Preservation Ages and Income Tests —by Noel Whittaker
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Noel Whittaker is the author of Wills, Death & Taxes Made Simple and numerous other books on personal finance. Email: [email protected]
Talkback radio is a great medium for financial education; questions from listeners get the ball rolling, and there is usually ample time to discuss subjects in depth.
My radio program last Wednesday afternoon turned out to be all about superannuation. The first caller said he was 40, a single dad, and had $150,000 in superannuation. He had been approached by a group who told him his only solution for a comfortable retirement was to start a self-managed superannuation fund, roll his $150,000 into it, and then have the fund borrow to buy an investment property. Of course, the caller was a property spruiker whose sole goal was to get a victim to buy an overpriced investment property built by the spruiker. It would’ve been a recipe for disaster.
Then somebody rang to ask about young people using their superannuation to buy their first home. From time to time, there have been ideas flagged in this direction, but so far, that idea has not gained traction. There is, however, the First Home Super Saver Scheme (FHSSS), which allows first-home buyers to make personal voluntary contributions to their super fund to help them save for a deposit. This scheme enables them to withdraw voluntary contributions from their super to use for a home deposit, provided they meet the eligibility criteria. When ready, if the voluntary contributions are sufficient, they can apply to release up to $50,000 plus any associated earnings. It’s no magic bullet, but it does encourage saving while getting some advantage from the difference between the tax on superannuation earnings and personal earnings.
Are you happy with your super fund? Image Credit: Shutterstock
Next came questions about access to super. For any access, you must have reached your preservation age, which is now 60. If you want to access the money before 65 you must satisfy a condition of release, which involves retiring from a job – it need not be your main job. If that doesn’t work for you, from age 60, you can start a Transition To Retirement (TTR) Pension, which lets you take out up 10 per cent of your balance as an income stream each year.
If gaining or maintaining access to the age pension is an issue, you need to understand how Centrelink treats superannuation. There is a lot of confusion about this.
Super is an exempt asset for Centrelink calculations until you reach 67. This works very well if one partner is of pensionable age and the other is younger. Moving the older person’s super into the younger partner’s name keeps it exempt and may enable the older partner to qualify for a part pension. There’s just one trap – once the younger partner starts a pension from the super fund, Centrelink counts it all.
Help is available! Image Credit: Shutterstock
Once a person becomes eligible to draw on their super without other conditions, the balance is counted for the asset test and given a deemed income for the income test. For example, if you’re over 67 and have $300,000 in super, Centrelink will treat that as an asset of $300,000, producing income of $180 a fortnight. Contrary to what many people think, the amount that you draw from your super is not counted for the income test.
No wonder people get confused. Australia’s superannuation system is world-leading, but it is complex. That’s why I’ve recently released the sixth edition of my book, Super Made Simple. Making the effort to understand your super will pay rich dividends for the later years of your life.
And remember: anyone who calls you to offer financial advice or opportunities is doing so for their own benefit, not for yours.
Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. Always seek professional advice that takes into account your personal circumstances before making any financial decisions.
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