Superannuation and retirement planning

Many people think of superannuation as something that only those approaching retirement should think about. However, super will be a large source of retirement wealth for many Australians, so it is important to consider strategies that can maximise this wealth, regardless of whether you're young and starting out or ready to retire. By implementing the right strategies and investing your super wisely, you can are increase the likelihood of a comfortable and independant retirement.

Why invest more into super?

One of the main benefits of investing in super is that there are several tax benefits involved. Perhaps the most important is that the tax payable on earnings on assets held within super is up to 15%, which can be lower than the tax paid on assets held in your personal name outside of super (this can be up to 46.5%)

When you retire and commence a pension paid from your super fund, there is a nil tax rate on assets in the fund, making super extremely tax-effective for retirees.

Contributing more to super

One of the simplest ways of building up your super benefits is by contributing more to super. However, there are different types of super contributions and your Pivotal Adviser can guide you in the right direction to ensure that you benefit fully.

• Salary sacrificing - most employees have the opportunity to salary sacrifice into super. This is where, instead of receiving part of your salary as cash income into your bank account, that portion of your salary is payed by your employer into super as extra contributions. The main benefit of salary sacrificing is that the contributions are taxed at 15% as they enter the super fund, instead of being taxed at your Marginal Tax Rate (which can be as high as 46.5%). So, if you are on a Marginal Tax Rate that is higher than 15%, you could potentially benefit from a salary sacrifice strategy
• Deductible super contribitions - Certain people, in particular self-employed, are able to make contributions to super that are tax-deductible. You should talk to a Pivotal Adviser about whether this applies to you
• Government Co-Contribution - To encourage Australians to put more away into super, the Federal Government has an initiative in place where they will make payments into your super fund when you make after-tax contributions into super. There are certain eligibility requirements in place, so you should talk to your Pivotal Adviser to determine whether your eligible for the Government Co-Contribution

Transition to retirement

If you're aged 55 and over, you have the opportunity to structure your super assets in a manner that can provide significant tax savings and maximise the potential growth of your super benefits. This can be done through a Transition to Retirement strategy.

Transition to Retirement is where you access your super funds early, via a pension. The pension paid out of your super fund provides an ongoing income stream that can replace (or top up) your existing salary income. The extra cashflow from your salary can then be "salary sacrificed" back into super, thereby building up your super benefits.

Account-based pensions

The most tax-effective source of income for retirees is an account-based pension. An account-based pension is an income stream paid from a superannuation fund following retirement or cessation of employment.

Account-based pensions are tax-effective compared to other sources of income because the Government has provided several tax concessions to this type of investment. These tax concessions include:

• No income tax is payable on the pension income for retirees aged 60 and over
• Income tax is payable on pension income for retirees aged less than 60, however this income receives a 15% tax rebate for those aged between 55 and 60
• The earnings on assets owned within an account-based pension is not taxable
• No capital gains tax (CGT) is payable on assets sold by an account-based pension

When you're planning for your future retirement, it may be beneficial building up your super benefits so that you can enjoy the tax advantages of an account-based pension when you retire. 

Self-Managed Super Fund (SMSF)

For those who wish to have greater control over their super, or increased flexibility, a SMSF may be appropriate. However, this extra control and flexibility comes with extra responsibility. A SMSF is not suitable for everyone, and a Pivotal Adviser will be able to assess the suitability of a SMSF, should you be interested.

Government Assistance

The Australian Government  provides substantial support to Australians through Centrelink. For retirees, this assistance is mainly in the form of the Age Pension. The Age Pension is designed to provide income support to Australians who cannot fully support themselves financially in retirement.

Age Pension recipients may also be eligible to receive the Pensioner Concession Card, which provide a wide range of benefits, including discounts on public transport, utilities and pharmaceuticals.

Other Centrelink support available to retirees includes the Comonwealth Seniors Health Care Card, which provides a host of benefits, such as discounts on public transport, utilities and pharmaceuticals. Retirees who do not receive the Age Pension may be eligible to recieve the Card, depending on their income.

Determining the level of Centrelink support you are entitled to can be a complex calculation. Also, there are strategies available that can potentially increase your level of Centrelink support. A Pivotal Adviser can assist you through this process.  

To find out more about Superannuation and Retirement Planning, contact us