The age bracket in which we see the greatest range of opportunities available to use super to improve someone’s financial position is age 60-67.
Superannuation can be an effective strategy at any age, however there are a range of opportunities that become available once someone turns 60, especially when it comes to savings tax. This is because, from age 60, we generally see the restrictions on accessing super loosen.
Listed below are a few of the potential strategies that open up from age 60 that might be worth considering:
1. Move more assets into the low tax super environment without losing access
Superannuation is a great way to save for retirement given the low tax rate on earnings. In accumulation phase, earnings on super assets are generally taxed at 15% and once moved to pension phase, earnings are taxed at 0% (excludes TTR Pensions). The downside has always been the loss of access until preservation age. From age 60, we generally see clients are much more willing to make additional contributions given the relaxed rules around access. Note, there are restrictions on how much you can contribute to super and there still can be issues with access post age 60.
2. Make additional tax-deductible contributions to super
You may already be aware, but you have the ability make additional tax-deductible contributions to Super (on top of what your employer may put in on your behalf). You can do this either by nominating additional salary sacrifice contributions through your payroll or by making lump sum contribution(s) from personal cash. These are known as concessional contributions, of which you have a yearly cap - currently $27,500 per financial year. While concessional contributions can be deducted from your taxable income, it is important to note they are taxed at 15% upon entry to your super fund.
3. Carry forward unused concessional cap from previous years
If your total super balance is below $500,000, you also have the ability to carry forward unused concessional caps from up to 5 years prior (commencing 2018/19 financial year). Therefore, if someone has not made any concessional contributions to super since and including the 2018/19 financial year, they may have the potential to make a tax-deductible contribution of up to $130,000 for the 2022/23 financial year.
4. Access your existing super to make additional contributions back to super and save tax
If you are still working, from age 60 (or your preservation age) you can begin to access your super through a transition to retirement (TTR) pension. Although a TTR pension is designed to supplement the income of those who partially retire, there is no restriction on those continuing to work full time to also start a TTR pension and begin to receive a benefit (maximum of 10% of account balance each year). These pension payments can then be used to make additional tax-deductible contributions to super.
5. Shelter assets from Centrelink means testing and access the age pension
This strategy is effective if there is a sizeable age gap between spouses. It involves contributing funds into the younger spouse’s super to ‘shelter’ from Centrelink means testing. When it comes to the age pension assessment, Centrelink do not take into account any assets held within Superannuation accumulation phase of a spouse who is under age pension age. This sheltering strategy can therefore be effective to allow an elder spouse to gain access to or increase a potential age pension benefit.
6. Reduce tax for the next generation
While over age 60, you and your spouse will likely be exempt from paying any tax on your Super benefits. However, the beneficiaries of your estate (e.g. your adult children), may be required to pay up to 17% tax on a large portion of your superannuation when eventually passed on. Your superannuation is generally split into one of two components; taxable or tax free. The taxable component is taxed at 15% (plus Medicare levy) when passed onto non-financial dependent beneficiaries. There is a strategy available to convert the taxable component to tax-free and this involves withdrawing funds and recontributing as after tax contributions. Again, please take into consideration contribution caps when assessing this strategy.
It is important to be aware that reaching age 60 may not necessarily free up access to your total super balance. It usually will allow you to commence a TTR pension (as detailed above), however, to gain full access to your super you will need to meet another condition of release such as, but not limited to:
- Reaching preservation age and full retirement
- Reaching age 60 and ceasing an employment arrangement
- Reaching age 65.
Although the strategies listed above may be suitable for some, everyone’s circumstances are different, and some strategies may not be appropriate for you. In addition, the rules governing superannuation are quite a complex and ever changing. If you would like further information about whether any of these strategies are suitable for you, please contact Financial Adviser John Mujic on jmujic@prosperity.com.au.
This communication contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. Prosperity Wealth Advisers (ABN 32 141 396 376) is an authorised representative of Prosperity Wealth Advisory Services Pty Ltd, Australian Financial Services Licensee (533675).
