17. Understanding the super rules
if you’re under 35

The new super rules make superannuation a much more attractive and flexible savings vehicle.

What’s changed?

The changes impact anyone who has a superannuation account and there are things you could be doing now to take full advantage of the new rules. Read on to see what’s in it for you, and how you can make the most of these changes.

The new super rules
Tax free super at age 60 Withdrawals from super are tax free when taken after age 60. This applies to lump sum or regular income payments (such as an allocated pension).
No Reasonable Benefit Limits (RBLs) RBLs have been removed.
After-tax contributions limited to $150,000 a year1 You can make after-tax contributions of up 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. Any contributions made over this limit will be taxed at the top Marginal Tax Rate (plus the Medicare levy).
Before-tax contributions are limited to $50,000 a year1 Any before-tax contributions your employer makes will be counted towards this limit. This includes superannuation guarantee contributions and salary sacrifice contributions.2 Any contributions made over this limit will be taxed at the top Marginal Tax Rate (plus the Medicare levy) and counted towards your after-tax contributions limit. Special transitional rules apply for people aged 50 and over. Please note: Special conditions apply for Defined Benefit schemes.
Your Tax File Number is required If your Tax File Number is not provided to your super fund: before-tax contributions that exceed $1,000 in a year (including employer and salary sacrifice contributions) will be taxed at the top Marginal Rate3 (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).

1. These limits will be indexed to Average Weekly Ordinary Time Earnings (AWOTE). The limits for before-tax contributions will only be increased by amounts of $5,000 once the increase is greater than $5,000. The limit for after-tax contributions will always be three times the limit for before-tax contributions.
2. It is your responsibility to ensure you do not exceed the before-tax contribution limit.
3. The $1,000 relief does not apply to new super accounts from 1 July 2007.

What’s in it for me?

Investing in superannuation has always been a great way to save for retirement and the changes to super rules now make it an even more attractive option. With this in mind, here are some strategies for you to consider:

Strategy 1

Salary sacrifice could save you tax

Salary sacrifice can be an effective strategy, because it allows you to put your before-tax salary straight into super - potentially saving you tax.

Your super will no longer be taxed when you withdraw it, as long as you wait until age 60 to make withdrawals. This could result in significant tax savings.

If your total income is $50,000 a year, here’s how a $5,000 salary sacrifice could help save you tax and boost your wealth:

	Take Cash Salary	Salary Sacrifice into Super
Gross salary	$50,000	$50,000
Less: salary sacrifice	-	$5,000
Taxable income	$50,000	$45,000
Less: income tax	$11,010	$9,435
Net take home pay	$38,990	$35,565
Super salary sacrifice	-	$5,000
Less: 15% contribution tax	-	$750
Net super investment	-	$4,250
Take home pay plus net super investment	$38,990	$39,815

Note: This is a tax only strategy. Marginal Tax Rates for 2006-07, including 1.5% Medicare Levy have been applied.

It’s important to note the above example does not take into account your eligibility for the Government co-contribution, which you may receive as a result of making after-tax contributions. You may be eligible for the Government co-contribution if your total income (assessable income plus reportable fringe benefits) is less than $58,980 a year. Other conditions apply.

With this in mind, you should consider your own personal circumstances prior to making either before-tax and/or after-tax contributions. For more information, read our ‘Super Co-contributions’ fact sheet.

Strategy 2

Slow and steady wins the race

Previously, it was possible to prioritise things like mortgages and children’s educations above superannuation because you could leave retirement planning until later in life. Many people were able to ‘top up’ their super later in life with an inheritance, another form of investment, or by salary sacrificing most of their income.

The new super rules mean that this may no longer be the case.

Because there are limits around how much you can put into super each year, you may need to change your approach and start making additional super contributions earlier. By doing so, you may also benefit from the power of compound interest. This means that if you start making regular contributions early you won’t need to contribute as much as if you leave it until later down the track

Super Checklist: Consider the following strategies to make the most of the super rules:
Strategy	Why	What to do next
Give Russell SuperSolution your Tax File Number (TFN)	This prevents you paying unnecessary taxes and allows you to make after-tax contributions.	Check if your TFN has been provided by calling our Helpline or checking your last benefit statement. If you need to supply your TFN, download a copy of the Your Tax File Number Form or call our Helpline.
Consider making additional contributions: Salary sacrifice After-tax contributions	Please note contribution limits apply. Potentially even more tax effective than before, and effective at a broader range of income levels. Could be more effective than salary sacrifice, depending on your circumstances as you may be eligible for the Government co-contribution.	Talk to your employer’s payroll department. Read our ‘Super Co-contributions’ fact sheet or contact us about making an after-tax contribution.

Issued by Russell Employee Benefits Pty Ltd ABN 70 099 865 013, AFSL 220705 (“REB”). 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. Any potential investor should consider the latest Product Disclosure Statement in deciding whether to acquire, or to continue to hold, an investment in Russell SuperSolution. REB 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 magazine 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. You may contact Russell SuperSolution on 1800 555 667.

Website: www.russell.com.au  | Helpline: 1800 555 667  | Email: yoursupersolution@russellsuper.com