Archive for 'super'
Marriage and de facto relationships come with a number of perks – but did you know that if your partner earns less than you or is not currently working, you could contribute to their super fund savings?
Many households in Australia, either as a result of unemployment, maternity/paternity leave or by choice, have single income households. As a result, the retirement savings held in super for one member of these households may not be increasing as exponentially fast as the working member. The good news is that, when in a relationship, a spouse can boost their non-working partner’s super fund with their own contributions.
The best part? It could be a tax write-off for the working spouse.
Under Australian superannuation law, a spouse can be a legally married partner with whom you live or your de facto partner. That gives additional benefits to those in de facto relationships, who can choose (if one member of the relationship isn’t working or earns less) to boost their partner’s super fund. A spouse must also be younger than their preservation age or between 65 and their preservation age and not retired.
There are two ways that someone can help their partner’s superannuation grow:
- Making a Spouse Contribution to their super account
- Arranging for Contribution Splitting (also known as Super Splitting)
Spouse superannuation contributions can now be made for spouses earning up to $40, 000 per year. If a spouse earns less than $37, 000, the maximum tax offset of $540 can be claimed when contributing a minimum of $3, 000 to their super. Anything contributed that is more than $3, 000 will not receive the spouse contribution tax offset.
This tax offset cannot be claimed if:
- A spouse has exceeded their non-concessional contributions cap for the financial year.
- Their super balance is $1.6 million (for 2020/21) or more on 30 June of the previous financial year in which the contribution was made.
Another way to inject funds into your spouse’s super is to choose to have some of your own super contributions put into their super account. This is fine as long as they have not reached their preservation age yet, or are between their preservation age and 65 years and not retired.
Super contributions can only be split in the financial year immediately after the year in which the contributions were made or in the same financial year as the contributions were made only if your entire benefit is being withdrawn before the end of that financial year as a rollover, transfer, lump sum or benefit.
There are two types of contributions that can be split:
- Employer contributions – the most common form of super contributions to split
- After-tax contributions – money that you voluntarily deposit into your super after tax.
Always discuss starting spousal co-contributions to super with your accountant or financial advisor for help and guidance prior to starting this process.
After COVID 19’s impact on the world, an influx of employees who had lost their jobs fell into the job market. Many of these came from companies that couldn’t afford to continue their employment. As a result, many individuals had to seek alternative employment, or draw from their super. Some individuals took on multiple jobs to pay bills, and others drew from the super that they had accumulated in the government’s early release scheme specifically for coronavirus related income loss.
Super is held by superannuation funds, and accumulates as a result of how much super an employer pays to the employees’ funds. Many Australians may find that they actually possess multiple super accounts as a result of having “lost” their super accounts during changeovers. It can also happen as a result of changing names, moving addresses, living overseas or changing jobs.
Australians can use the ATO’s online tools to:
- View details of all of their super accounts, including lost or unclaimed amounts
- Consolidate eligible multiple accounts (including any super held by the ATO)
- Withdraw your super held by the ATO when certain conditions are met.
As superannuation funds often have fees associated with their upkeep, as well as insurances that may be tied into it (such as life, total and permanent disability and income protection), it’s important to consult with providers before accounts are consolidated.
Super (AU): Pros and cons of home reversion
Home reversion is when you sell a share of the future value of your home whilst still living there. You receive a lump sum payment and continue to own the remaining share of your home equity.
- You are able to continue living in your home after you sell the share
- You can conduct renovations or maintenance that your home may need with the lump sum payment you receive
- You can use the lump sum for any urgent needs such as medical treatments
- The lump sum could help you secure accommodation till your home sells
- You will own the lower share of the equity in your home
- Transactions and costs can get complicated and it may be hard to navigate that
- Your eligibility for Age Pension might also be influenced
- Your ability to afford aged care could be affected
- You might end up eating into money that you need for the future – such as for medicare
- You might be locked into fewer options if your circumstances change
- If you are the sole owner and someone else lives with you, they may no longer be able to live in the house if you move out or pass away
The transfer cap refers to the amount of money that can be transferred from your superannuation account to your tax-free ‘retirement phase’ account.
At the moment, the transfer balance cap is $1.6 million and all individuals have a personal transfer balance cap of $1.6 million.
Exceeding the personal transfer balance cap means that you have to:
- Commute the excess from one or more retirement phase income streams.
- Pay tax on the notional earnings related to that excess
The amount in your retirement phase account may grow over time, due to investment earnings. Although this may grow beyond the personal transfer cap, you will not exceed the cap. However, if you have already used all your personal cap, and then your retirement phase account goes down, you cannot ‘top it up’.
The rules applied to capped defined benefit income streams are different from other income streams – this is because you can’t usually transfer or commute excess amounts from other streams.
Many Australians ignore the decision of choosing investments for their super and often end up in the ‘default’ option as they make no effort to choose otherwise.
Default options that aim for ‘balanced’ or ‘growth’ investments tend to have 60-80% of funds invested in shares and property. This approach for investment is based on the best-suited strategy for a large number of members across the years they will be investing.
However, the default options may not be the best for your financial circumstances and risk profile. Understanding different investment options and how risk assessments work will help you choose better investment options.
Further, aim to change investment options over time rather than sticking to the same one. For example, you could consider changing options once you begin receiving a pension.
SMSF funds can provide pension or lump sum benefits during retirement. Retirement is a condition of super release if you have reached your preservation age. Depending on your date of birth, your preservation age will be between 55 and 60. The benefits from your super are tax-free once you are over the age of 60.
If you plan to start a super pension income stream, then the funds from your accumulation account need to be transferred to your retirement account to fund your pension. Your retirement account has a cap of $1.6 million, so you can transfer that amount as a lump sum but no more. The earnings on these funds are tax-free.
Each year, you need to withdraw a minimum percentage of your account balance from the retirement fund. This minimum percentage will depend on your age.
Alternatively, you can start your Transition-to-retirement pension if you have reached your preservation age but you are still working. However, unlike the funds that support your super pension once you begin retirement, these are taxed at 15%.
Calculating how much super you will need will help you decide whether you should be contributing more to your super. You can utilise salary sacrifice schemes to increase contributions, especially if you are not using your entire salary.
There are two main factors that impact the amount of super you will need when you retire:
Costs in retirement
Consider the major costs that you will need to continue paying during retirement. Examples include:
- Paying off your mortgage
- Renovating your income
- Medical costs
Estimate how much money you will be needing for each of the aspects that apply to you. Make sure that your estimations are as realistic as possible. Some things, such as medical costs, may be difficult to accurately estimate, so try to keep a higher margin.
The lifestyle you want
Think about what sort of lifestyle you want once you retire and consider how much money that will require. The Association of Superannuation Funds of Australia provides an estimation of how much money you will need depending on what sort of lifestyle you want:
- Single and modest lifestyle: $27,987 a year
- Single and comfortable lifestyle: $43,901 a year
- Couple and modest lifestyle: $40,440 a year
- Couple and comfortable lifestyle: $ 62,083 a year
These are estimations and the numbers may be different depending on your circumstances and lifestyle.
Setting up an SMSF fund is the simplest step. Establishing a fund which delivers you consistent returns from your investments is much more difficult.
Investing successfully involves determining precise goals and picking investments which will effectively achieve those goals. The advantage of SMSFs is that you can build a portfolio which reflects your short-term and long-term goals in response to changing market conditions.
In an SMSF fund, your investment options are:
- Australian and international shares (listed and unlisted)
- Residential or commercial property
- Cash and term deposits
- Fixed income products
- Physical commodities
Before you begin investing, consider what might be the best way to diversify your portfolio. How you portion your investments will depend on your funds, the market, and your goals. Regardless of what your plan is, diversification should be a priority.
Choosing an SMSF as opposed to an industry or retail super fund provides you with more flexibility, but also with more responsibility. Researching before investing is key if you want the best out of your SMSF.
Superannuation is an attractive target for scammers as a significant volume of funds are placed into super funds by Australians.
There are some straightforward steps you can take to protect yourself from super scams.
Know the rules
- Becoming familiar with the rules surrounding superannuation will alert you against scams which make false claims e.g. offering early access to your super
- Keep up to date with the relevant authorities and so that you don’t put in your personal information into the wrong websites – always check that relevant institutions have verified their authenticity!
Check your balance and contact details
- Check what your super balance is on a regular basis – if you notice something that doesn’t quite look right then immediately get into contact with your super fund and ask them about what could have happened.
- Every once in a while, check that your super fund has the right postal address, email address and mobile number – this will help them get in touch with you if they spot any suspicious activity.
Stop identity theft
- Taking the steps to stop identity theft will also help protect your super
- This does not have to be all too complicated e.g. shred important documents, change passwords every few months, etc.
Changing of name, address or job can mean that you lose track of some of your super. This means that there is money that belongs to you that is not currently in your super fund. Finding your super will collate your previous lost funds with your current account.
It is likely that your lost super is held by the ATO. Create an account on myGov and link it to the ATO and select ‘Super’.
Once you have done this, you will be able to see the details of all of your past and current super accounts including any lost or forgotten ones. You will also be able to find funds which have been held by the ATO on your behalf. Further, you will be able to consolidate your super funds into a single fund.
Once you have found your lost super, remember to conduct research about which fund is providing you with the best returns before you choose which fund to consolidate with.