9. The new super system
The new super rules make superannuation a more attractive and flexible way to save for your retirement.
- No tax on super payments for over 60s
- New contribution limits
- Simpler super pensions
- Other changes to note
No tax on super payments for over 60’s
Superannuation benefits paid to you from a taxed fund1 will be tax free, so long as you are 60 or over at the time of the payment. This will apply regardless of whether you take your super as a lump sum or pension.
The removal of tax could have a significant impact on the amount of money in your pocket when you retire.
1 A taxed fund is one in which 15% tax has been paid on contributions made. Russell SuperSolution Master Trust is a taxed fund.
Changes to contribution limits
Contributions made to your super account before-tax (including your employers contributions, and any salary sacrifice you make) are limited to $50,000 per year.
However, if you’re over 50, a higher limit of $100,000 will apply to you until 30 June 2012. If you turn 50 before 30 June 2012, you will be able to access the higher limit.
After-tax contributions are limited to $150,000 per year. However, to accommodate larger contributions, people under age 65 will be allowed to bring forward two years of contributions. For example, a person under age 65 will be able to make up to $450,000 of contributions in the 2007-08 financial year but will then be unable to make further non-concessional contributions until the 2010-11 financial year.
All this is designed to allow you to save more for your retirement while you’re young. Getting started early makes a big difference to your final super balance due to the impact of compound interest. You can find an example in our case study ‘making contributions early increases their power’ on www.russell.com.au
Simpler super pensions
Simplified payment rules
Minimum standards apply to superannuation pensions. The standards include:
- Payment of a minimum amount annually, with no maximum amount2.
- Upon the death of a pensioner, the pension may be transferred to a beneficiary, or paid as a lump sum to the pensioner’s estate.
2 A maximum amount of 10%p.a. will apply to transition to retirement pensions.
Change to qualification rules for Centrelink benefits
If you intend to qualify for an age pension or other Centrelink pensions while receiving income from super, the below changes will be relevant to you.
From 20 September 2007, the pension assets test taper rate will be halved. If you receive a Centrelink pension you will only lose $1.50 per fortnight (rather than $3) for every $1,000 of assets above the relevant threshold.
The assets test exemption for 'complying' income streams will be removed for income streams purchased on or after 20 September 2007. This will mean the total balance of your superannuation pension will count as an asset.
If you commence a complying pension before 20 September 2007, 50% of the balance will not be counted as an asset. Russell SuperSolution Master Trust (Russell SuperSolution) offers a Term Allocated Pension which is a ‘complying’ pension.
Other changes to note
The importance of providing your Tax File Number
If your super fund does not have your Tax File Number (TFN), the following will apply:
- before-tax contributions (including employer and salary sacrifice contributions) that exceed $1,0003 for the year will be taxed at the top marginal rate (plus the Medicare levy),
- after-tax contributions cannot be accepted by the fund, and
- if you are under age 60, your withdrawals may be taxed up to the top Marginal Tax Rate (plus the Medicare levy).
Read our ‘It’s important to provide your tax file number’ fact sheet for more information on how you can check if we have your TFN as well as how you can provide your TFN to us.
3 The $1,000 relief does not apply to new super accounts from 1 July 2007.
Have you ever had trouble transferring super from one fund to another?
That’s about to change. A standard form with standard identification requirements has been introduced by the Australian Tax Office (ATO) which all funds should accept. The maximum time allowed for the processing of these requests will be reduced from 90 days to 30 days.
Self-employed?
You can access the Government co-contribution and you can claim a full tax deduction for contributions you make to super. Before-tax contributions will be limited to $50,000 or $100,000 based on your age, as described earlier.
Compulsory withdrawal rule removed
You are no longer required to begin taking your money out of superannuation when you reach 65. Members over 65 were previously required to take a lump sum or start a pension if they were not working a prescribed minimum number of hours. So now you can leave your money to accumulate in super for as long as you like.
Need more information?
You can find more information about these proposals at www.simplersuper.treasury.gov.au
If you have any further questions, or would like to make changes to your account in light of the proposals, please call our Helpline on 1800 555 667.
Issued by Total Risk Management Pty Ltd ABN 62 008 644 353, AFSL 238790, RSE L0000260, (“TRM”). This document provides general information only and has not been prepared having regard to your objectives, financial situation or needs. Before making an investment decision, you need to consider whether this information is appropriate to your objectives, financial situation and needs. The information has been compiled from sources considered to be reliable, but is not guaranteed. Any examples have been included for demonstrational purposes only and should not be relied upon for the purpose of making an investment decision. Past performance is not a reliable indicator of future performance. An invitation to apply to join the Russell SuperSolution Master Trust is made by TRM in a Product Disclosure Statement (“PDS”). Any potential investor should consider the latest PDS in deciding whether to acquire, or to continue to hold, an investment in Russell SuperSolution. The PDS is currently available by phoning 1800 555 667 or by visiting www.russell.com.au. TRM is part of the Russell Investment Group (“Russell”). Russell or its associates, officers or employees may have interests in the financial products referred to in this document by acting in various roles including broker or adviser, and may receive fees, brokerage or commissions for acting in these capacities. In addition, Russell or its associates, officers or employees may buy or sell the financial products as principal or agent.