Category: Newsletter

Make sure you don’t lose out on your age pension entitlements.

After a lifetime of hard work, it’s important you maximise your entitlements in retirement. So you need to structure your finances carefully to make sure you don’t lose your age pension. After all, you’ve earned it.

Here are some common traps to be aware of.

Helping loved ones out…

It’s only natural to want to help younger family members get a leg up financially. But if you’re nearing or already in retirement, you need to be careful how you go about this, as you could inadvertently affect your age pension entitlements.

If you’re thinking of giving money, the rules are you can gift $10,000 per financial year, and no more than $30,000 over a five-year period.

Any excess amount is counted as an asset, and deemed to earn income, for a full five-year period from the date of the gift.

…especially with buying property

With house prices so high and home ownership getting out of reach for younger Australians, it’s no surprise that many parents want to help their kids get a foot on the property ladder. But with property you need to be extra careful in how you set things up.

Let’s look at an example. A couple aged 55 want to help their daughter buy her first home. Without taking advice they buy a 50% share of a house worth $500,000 so she can obtain a loan.

Fast forward 12 years and the house is now worth $1,000,000, of which their half share is $500,000. Their other financial assets are worth $700,000 so they believed they would be eligible for a part age pension. To their dismay they discover their equity in their daughter’s home has taken them over the assets test cut-off point, meaning they won’t be getting any age pension from the Government.

So what can they do? If they transfer their ownership share to their daughter the capital gains would be as high as $125,000 after the 50 per cent tax discount, on which capital gains tax could be as much as $50,000. And they would have to wait five years to qualify for the pension because Centrelink would treat the $500,000 as a deprived asset. The total value of the capital gains tax and the lost pension could be as much as $150,000!

If they’d been aware of the trap, or taken advice, they could have gone guarantor for their daughter, possibly putting up their own home as part security, and this would have had no effect on their future pension eligibility. Alternately, they could have transferred their ownership to their daughter at least 5 years before they became eligible for the age pension. They still would have had a capital gains tax liability, but at least the 5-year period for counting the gift would have elapsed by the time they applied for the age pension.

Borrowing against the family home to invest

If you’re already, or about to be, on the age pension, purchasing an investment property with the loan secured against your family home (primary residence) can be a trap.

Normally, the debt against an investment asset—for example, an investment property—is deducted from the asset value when working out whether you’re eligible for an age pension. But if the mortgage is secured against another asset like the family home, then the gross amount is counted. So this may affect your age pension as the full value of the investment is counted as an asset.

A way to avoid this could be to secure the asset against the investment instead.

Downsizing the family home

If you’re thinking of selling your family home and buying a smaller place, there’s an added incentive as the Government is allowing downsizer contributions into super for eligible Australians of up to $300,000.

But there could be a Centrelink sting in the tail, as you’re converting an exempt asset (the family home) into a counted asset (money left over) that could affect your eligibility for the age pension.

There’s plenty to think about if you’re looking at downsizing, so you might want to get some advice.

Leaving a bequest in your will

Many retired couples leave all their assets to each other in their wills if they pass away.

While this is perfectly understandable, it could cause grief to the surviving partner if their age pension is reduced or lost altogether. The asset cut-off points for singles and couples are quite different—$595,750 for a single person and $901,500 for a couple.

Starting a super income stream early

If you start a super income stream once you reach preservation age and before you reach age pension age—for example, as part of a transition to retirement strategy—it could affect your entitlements to Centrelink allowances like Jobseeker. So it’s important to get financial advice.

Advice can make all the difference in how you set up your super and pension arrangements in general. If you have a younger partner, one option could be moving assets into super as a non-concessional contribution for the spouse who is under age pension age.

The amount placed in super for the younger spouse is preserved until they meet a condition of release. This may work well if their condition of release is only a few years away, but could be a concern if there’s more of an age gap.

Changing account-based pensions

If you’ve been receiving an account-based pension (ABP) for a while, you should be aware of a change made on 1 January 2015 which impacted how much income from the ABP is counted towards the age pension income test.

If you were in an existing ABP you were exempt from the new rules—but only for as long as you continued with the same provider.

So if you change providers you could inadvertently reduce your age pension entitlements. We can help work out the best option for your particular circumstances—the benefits of a new ABP or the higher age pension.

Setting up a family trust

If there’s a family trust or private company involved in your affairs, the rules are even more complex, so you’ll need expert advice before applying for the age pension.

Looking at the best way to set up your finances in retirement? Talk to us.

©AWM Services Pty Ltd. First published Apr 2022

John Perri is Head of TapIn & Technical Strategy at AMP.

A number of changes to the super system could create opportunities for Australians of all ages. Here’s a rundown of what you need to know.

Last month, the Federal Government legislated a number of proposals that it previously put forward in its May 2021 Federal Budget. The changes announced will come into effect on 1 July 2022.

Here’s a snapshot of what will change, with further details below.

• • More people will be eligible for contributions from their employer, under the Superannuation Guarantee (SG), as the minimum income threshold of $450 per month will be removed.

 

• • Work test requirements for those aged 67 to 75 will be softened and only apply to people who want to claim a tax deduction on voluntary super contributions they may be making.

 

• • More people will be able to make up to three years’ worth of non-concessional super contributions in the same financial year, with the cut-off age increasing from 67 to 75.

 

• • More people will be eligible to make tax-free downsizer contributions to their super from the proceeds of the sale of their home, with the eligibility age reducing from 65 to 60.

 

• First home buyers, who meet certain criteria, will be able to withdraw an additional $20,000 in voluntary contributions from their super, to put toward a deposit on their first home.

How you could benefit from the changes

Compulsory (SG) contributions from your employer

Under the government’s Superannuation Guarantee (or SG for short), you currently need to earn at least $450 per month to be eligible for compulsory super contributions from your employer. However, from 1 July 2022 that minimum income threshold will be removed.

This means that even where an eligible employee earns less than $450 in a calendar month, there is now an obligation on the employer to make contributions. Find out more about the Super Guarantee and what you’re likely to receive if you’re eligible.

The work test

Currently, people aged 67 to 74 can only make voluntary contributions to their super if they’ve worked at least 40 hours over 30 consecutive days in the financial year, unless they meet an exemption.

From 1 July 2022, the work test will no longer apply to contributions you make under a salary sacrifice arrangement with your employer, or personal contributions that you don’t claim a tax deduction for.

The work test however will still need to be met if you wish to claim a tax deduction on personal contributions.

Under the new rules, the work test can be met in any period in the financial year of the contribution. This is different to the current rules, where the work test must be met prior to contributing.

Non-concessional super contributions

Currently, those under the age of 67 at the start of the financial year can make up to three years of non-concessional super contributions under bring-forward rules.

From 1 July 2022, the cut-off age will increase to 75.

The bring-forward rules allow you to make up to three years of non-concessional contributions in a single year if you’re eligible. This means you could put in up to three times the annual cap of $110,000, meaning you could top up your super by $330,000 within the same financial year.

How much you can make as a non-concessional contribution will depend on your total super balance as at 30 June of the previous financial year.

Downsizer contributions

The age Australians can make tax-free contributions to their super from the proceeds of the sale of their home, which needs to be their main residence, will be reduced from 65 to 60. (Note, there is no upper age limit for downsizer contributions and no requirement to meet the work test.)

The maximum downsizer contribution amount of $300,000 per eligible person and other eligibility requirements remain unchanged.

For couples, both spouses can make the most of the downsizer contribution opportunity, which means up to $600,000 per couple can be contributed toward super.

The First Home Super Save Scheme (FHSSS)

The First Home Super Saver Scheme (FHSSS) aims to provide a tax-effective way for eligible first home buyers to save for part of a deposit on a home.

Under the scheme, you can withdraw voluntary contributions (plus associated earnings/less tax) from your super fund, with the current maximum withdrawal broadly $30,000 for each eligible individual.

From 1 July 2022, this withdrawal cap will increase to broadly $50,000 for each eligible individual. Find out more about the FHSSS and what eligibility criteria applies.

Other important things to note about your super

• • If you exceed concessional and non-concessional super contribution caps, additional tax and penalties may apply.

 

• • The value of your investment in super can go up and down, so before making extra contributions, make sure you understand, and are comfortable with, any potential risks.

 

• The government sets general rules around when you can access your super, which typically won’t be until you reach your preservation age (which will be between 55 and 60, depending on when you were born) and meet a condition of release, such as retirement.

There may be lots of things to consider when it comes to these superannuation changes, and it may affect what you choose to do this financial year. We’re here to help.

©AWM Services Pty Ltd. First published Mar 2022

We look at how much money you might need each year and ways you can still budget for your social life.

Australian retirees generally need a certain budget each year to live a modest or comfortable lifestyle, and industry figures recently revealed the highest annual increase in those budgets since 2010ⁱ.

The Association of Superannuation Funds of Australia (ASFA) put that increase, in part, down to a range of unavoidable price hikes on things such as petrol and council ratesⁱⁱ.

If you’re in or approaching retirement, that mightn’t be welcome news, particularly if you’re prioritising bills, trying to reduce debt, helping the kids out (if you have any) and enjoying an active social life.

On the flip side, knowing how much you might need and what you may like to do could go a long way.

So, how much money do you need?

According to September 2021 ASFA figures, individuals and couples, around age 65, who are looking to retire today, would need the below annual budgets to fund certain lifestylesⁱⁱⁱ.

Figures are based on the assumption people own their home outright and are relatively healthy^iv. You can also see how these budgets compare to the current maximum Age Pension rates being paid by the government^v.

	Comfortable lifestyle	Modest lifestyle	Full Age Pension rate
Single (annual budget)	$45,238	$28,775	$25,155
Couple (annual budget)	$63,799	$41,446	$37,923

Note, a comfortable retirement lifestyle is said to enable an older, healthy retiree to be involved in a broad range of leisure and recreational activities, whereas a modest lifestyle involves just basic activities^vi.

How much are you likely to spend on recreation anyway?

According to figures, singles and couples around age 65, living a comfortable lifestyle in retirement, would spend about $189 and $285 of their weekly budget respectively on leisure and recreation, whereas singles and couples living a modest lifestyle would spend about $97 and $153 respectively^vii.

This takes into account recreational activities like^viii:

• • Movies, plays, sports and day trips

 

• • Lunches and dinners out

 

• • Club memberships

 

• • Takeaway food and alcohol

 

• • Streaming services like Netflix and Stan

 

• Domestic vacations (and for those living comfortable lifestyles, international ones too).

What activities are on your to-do list?

Considering the above figures, it may be worth thinking about what you enjoy doing or what you’re likely to want to do more of with extra time on your hands.

These things may include:

• • Sport – golf, tennis, cycling, yoga, pilates

 

• • Hobbies – fishing, sailing, photography, drawing, woodwork

 

• • Club associations – Rotary, Leagues, Surf Life Saving/

 

• • Tournaments – trivia, bridge, chess

 

• • Eating out – restaurants, beach barbecues, picnics, food fairs

 

• • Travel – interstate breaks, overseas holidays, road trips, caravanning

 

• • Entertainment – cinemas, concerts, events, stage shows

 

• Volunteering – hospitals, soup kitchens, animal shelters.

Making your money go further for the fun stuff

The good news is, not all things will come with a price tag, so it will be possible to do a variety of things that don’t necessarily cost money.

In the meantime, here are a few simple things that you might consider to keep costs down in retirement.

• • Make use of your Senior’s Card for transport concessions and discounts on other goods and services

 

• • If a restaurant isn’t in your budget one week, pack a rug, basket and esky, and head out for a picnic

 

• • If you enjoy dining out, research cheaper deals on sites like Groupon and Scoopon

 

• • Have your friends over for a card night or take turns hosting simple dinner parties where people BYO

 

• • If you want to get away, look out for cheap flights or consider a road trip. There are lots in Australia

 

• Find cheap accommodation on Airbnb, HotelsCombined, lastminute.com or consider listing your own place to earn some money while you’re away.

If you would like to discuss your plans for retirement, please don’t hesitate to give us a call.

©AWM Services Pty Ltd. First published Feb 2022

i, ii ASFA media release – Living costs for Australian retirees rise at fastest pace in a decade – November 2021

iii, iv, vi ASFA Retirement Standard – September 2021

v Services Australia – Age Pension – How much you can get – 2 February 2022

vii, viii ASFA Retirement Standard – Detailed budget breakdowns – September 2021, page 3

If you’re still in the honeymoon period, not wanting to have these conversations may make total sense (unless of course, you’re about to wire some overseas lover you’ve never met in person your life savings).

If you have been together for a while though or are edging on making a big financial decision together, having the money talk could make a big difference to whether you go the distance.

Understandably, it may not be the easiest topic to broach, so here’s a bit of a checklist as to what you might discuss, depending on what you have planned going forward.

1 Your views on cash management

Talk to your partner about your views around spending and saving. Kicking off with a light-hearted conversation, without judgement, can often be a good place to start.

You might even want to share some examples of things in the past that may have influenced your current views and behaviours.

2 Sneaky spending habits if you have any

More than one in four Aussies has lied or been lied to about money by a partner, with hidden debt and secret spending two common contributing factorsⁱ.

With that in mind, if there are a couple of common transactions you make that you know you haven’t always been forthcoming about, now may be a good time to get that out in the open.

3 Your income, expenses, assets and debts

Your financial situation is an important one to talk about because even if you’re both earning a decent income (and potentially have some assets behind you), big expenses and potentially thousands of dollars of debt between you may impact any plans you have in the short and longer term.

The average credit card balance for instance is around $2,876 in Australiaⁱⁱ, not taking into account other loans people may have taken out, such as car loans, student loans and through buy now pay later services.

4 Whether you’ve been paying your bills on time

If you’ve got a credit card, personal loan, mobile phone plan or utility account, there’s more than likely a credit reporting agency out there that has a file with your name on it. This file, also known as a credit report, will summarise how good you’ve been at paying your bills and making your repayments on time.

If you have a chequered history, your report mightn’t read particularly well, and this could affect your ability to borrow money for a range of things, which may include a house for the two of you. Meanwhile, if you’re unsure how your report reads, you can request a copy from one of the reporting agencies (Equifax, Experian, illion or the Tasmanian Collection Service).

5 What’s on your bucket list now and down the track

If one of you has plans to travel, buy property, get married or have children and the other doesn’t, this could raise issues (or perhaps opportunities) for further discussion.

Depending on how important these things are to you or your partner, it may be worth nutting this out early on, or if you don’t come to a solution, knowing that it’s something you’d like to raise again at a later date.

6 What a joint budget and savings plan might look like

Committing to something that you both think is fair could go a really long way here. If you’re not sure where to start, a good first step might be drawing up what money is coming in, what money is needed for the mandatory stuff and what may be left over for your social life and savings.

While not everything has to be shared, if one person’s saving more and the other’s spending more, arguments may arise, so try to come to an agreement that works for both of you.

7 Your contingency plan if one of you isn’t earning an income

Approximately one in five Aussies has no emergency savings to keep them afloat when faced with unforeseen circumstancesⁱⁱⁱ, so it’s probably worth talking about whether either of you have an emergency stash of cash, personal insurance, or anything that may help you get by through a tough period.

If you don’t have a plan b, now might be the time to talk about how you can create one together. It might not be a nice thing to think about, but an emergency fund may also be invaluable if the relationship ends, as this could provide you with greater options than if you’re dependent on someone.

8 How you’ll divide costs and or repayments

You may decide to tackle this 50/50 or proportionate to each other’s income. That is something you’ll want to nut out before you take on a big financial commitment together, like renting a property together for example.

You might also want to take into consideration anything additional either of you bring to the table, like caregiving, domestic duties such as cooking and cleaning, or other forms of income or assets.

9 Potential risks that may arise if you merge your money

If your partner defaults on a repayment, you may be liable for the amount owing, even if your relationship ends. On top of that, ignorance isn’t an excuse, so if you sign papers you don’t understand, you’re no less liable for any loans or guarantees you may have signed off on.

With that in mind, it’s important both of you understand your responsibilities and consider whether you want to put anything you might agree to in writing.

©AWM Services Pty Ltd. First published Feb 2022

i Finder – Debt deception: 2.7 million Australians have lied to their partners about money – Feb 2021

ii Finder – Australian credit card and debit card statistics – Dec 2021

iii Finder – Saving hard or hardly saving: Millions of households have no emergency savings – June 2021

If retirement’s on your horizon, you’ll be keen to make sure your plans stay on track. It makes sense to concentrate on things you can control, such as insurance.

Paying for more insurance than you need can eat away at your retirement savings, at a time when they’re more important than ever. Under-insure and one day you may find you need it and have to use savings or borrow money to help you get through hard times.

Cover for a changing life

If you’re considering what insurance you may need in the lead up to retirement, a good way to get started is to think about what you really need, and what you don’t.

Another approach is to make sure you’re holding the right insurance for the lifestyle you want in retirement.

Here’s a simple checklist that may help:

1. Ask yourself how much money your family would have if you were to pass away or become disabled.
2. Compare that with how much money your family might need in the same situation, including how they’d manage paying for day-to-day costs like mortgages or rent.
3. The difference between the two can help you work out how much insurance you may need.

Consider your existing cover

Dig out your existing insurance agreements, taking special note of when they’re due to expire and your continued eligibility for the policies they hold.

An important area for many Australians is insurance held in superannuation. These policies can come as part of our super account, and often have an expiry date.

Insurance in super

Insurance in super can help us out when we really need it. Like any type of insurance, it works best when you have the right level of protection for your situation. As you head towards retirement and your life changes, so might your priorities.

As well as Life insurance which pays a lump sum benefit if you pass-away, you might have Total and Permanent Disablement (TPD) in your super. TPD cover may provide you with a lump-sum payment if you suffer a disability that prevents you from ever working again.

TPD could help you pay for ongoing medical expenses, alterations to your home to make day-to-day life easier and help provide future financial stability.

Total salary continuance, also known as income protection, is designed to pay a monthly benefit of up to 75% of your pre-disability regular income if you’re unable to work due to injury or illness.

Typically, within super, Income Protection provides you with cover either for a two-year or five-year period or until you turn 65, depending on the terms of your plan.

What to look out for

There are pros and cons of insurance within super. Things to think about if you’re approaching retirement include:

• Cover through super may end when you reach a certain age (usually 65 or 70). That’s generally different to cover that’s outside a super account.
• Taxes may be applied to TPD benefits depending on your age.
• Claim payments may take longer, as the money is normally paid by the insurer to the trustee of the super fund before it’s paid to you or your dependants.
• It’s a good idea to make sure your super balance isn’t being reduced more than it needs to be, by your insurance payments. This is called insurance erosion¹1

Don’t double up and stay flexible

As part of your review, it’s also a good idea to check insurance you hold in super against other policies you might have outside super.

Then compare your cover, check whether you have any insurance double ups – if you have more than one super account with the same type of insurance, you may be paying for more insurance than you need. In particular, for Temporary Salary Continuance (TSC or Income Protection), you’ll most likely only be able to claim up to 75% of your pre-disability income (offsets may apply), regardless of how much you’re insured for or whether you hold it in two accounts.

As well as comparing the level of cover you get, consider any exclusions, such as the treatment of any pre-existing medical conditions, and waiting periods. Remember that if you do cancel your insurance, you might lose access to features and benefits and may not be able to sign back up at the same rate, or at all.

If you are applying for or reinstating your insurance, or are looking to make a claim, it’s also important to disclose your situation to your insurer honestly. Otherwise, the insurer may be entitled to refuse your claim.

Any changes in life calls for flexible thinking, whatever age you are. The lead up to retirement is a great time to review your insurance and adapt to changing circumstances.

©AWM Services Pty Ltd. First published Dec 2021

1 An inactive account is a super account that has not received any contributions or rollovers for 16 months. Learn more at https://www.amp.com.au/insights/grow-my-wealth/protect-your-super-package.

Looking at your spending in a new light could make a substantial difference to your financial future. The 50/20/30 budget rule works for one main reason – it’s easy.

New to budgeting? You may know how much money you make and have a rough idea of how much you spend. But do you know what you’re actually spending it on, or if your spending patterns will benefit you in the long run? The good news is, you don’t need complicated spreadsheets and formulas to get your personal finances in check.

Enter the 50/20/30 budget rule, a kind of yardstick to guide your spending patterns. The concept was popularised by bankruptcy expert and US senator Elizabeth Warren, who co-wrote All Your Worth: The Ultimate Lifetime Money Plan with her daughter, Amelia Warren Tyagi. The essence is to keep your personal budget simple: the easier it is to understand, the easier it is to stick to.

What is the 50/20/30 rule?

Needs: Ideally, you’d spend 50% of your after-tax income on essential living expenses, like rent or your mortgage, other loan payments, groceries, bills, insurance and transport.

Savings: Next, you’d channel 20% of your income into your financial goals, whether that’s building an emergency fund, boosting your superannuation or saving for a house deposit.

Wants: The final 30% of your money would be allocated to things that make your life a little more enjoyable but aren’t necessary to get by. Think new clothes, concert tickets, a holiday or a meal out with friends.

Consider the figures for needs and wants as a guiding principle – if you spend less than what you budgeted for in either category, the surplus can be channelled into things such as extra mortgage repayments, general savings or investments.

How to create a 50/20/30 plan

To put this budgeting plan into action, you need to have more than a rough idea of what you spend. Make a list and tally up your monthly expenses – remember to include averages for bills that might be infrequent – and then break them up into ‘needs’ and ‘wants’.

If you’re currently spending 60% of your income on needs and 40% on wants, you probably won’t be surprised to find you’re not saving anything for your future. Take some time to reassess where you can cut back to start saving more in each category.

• Needs: Can you get a better deal on your phone plan? Can you plan weekly menus to reduce your grocery bills? Do you need to take more drastic measures, like moving to a new house to reduce the amount you spend on rent or your mortgage?
• Wants: Can you go without takeaway coffee this month? Do you really have to go out to dinner three times a week? Is that new jacket a must-have?

One way to make sure you stay on track with saving money is by splitting your pay packet as soon as you get paid. You could keep your everyday bank account for your needs, for frequent and easy access. Then consider additional accounts, for wants and savings. Set up an automated direct debit for the day after you get paid, so that the cash split from your everyday bank account happens without you having to do a thing.

Why the 50/20/30 rule works

The 50/20/30 budget rule is popular because it may allow you to manage your money without making too many sacrifices. You pay your bills, grow your savings and still get to have some fun. It also gives you a way to look at your spending in a different light – would you have moved to a cheaper apartment sooner if you’d realised what a large chunk of your income your rent was consuming? Having a new perspective of what’s absolutely necessary can be refreshing and rewarding.

When the 50/20/30 rule doesn’t work

Like all rules, the 50/20/30 rule was made to be broken – in some situations. If you have a hard time separating your needs from your wants, you’ll probably find this form of budgeting tricky to stick to. And it can be downright detrimental if, for example, you have large debts but are still stashing away 30% of your pay for personal splurges. This is the time to consider shifting some of the money in your ‘wants’ column to your ‘needs’ column – not forever, but just until you get your spending on essentials down to a more manageable level.

©AWM Services Pty Ltd. First published Dec 2021

A TTR pension could allow you to withdraw up to 10% of your super savings each financial year whether you’re still working full-time, part-time or casually.

Even if you’re nearing retirement age, you mightn’t want to leave the workforce just yet. You may want to save more money, or you might just enjoy the mental stimulation and interactions that come with having a job.

Whatever the reason, setting up a transition to retirement (TTR) pension could provide you with greater financial flexibility by enabling you to access a portion of your super each year while continuing to work full-time, part-time or casually.

Below we answer some commonly asked questions, such as when you can start a TTR pension, how it might create financial flexibility, how much you can withdraw and what the potential tax benefits may be.

At what age can I start a TTR pension?

A TTR pension enables you to access some of the super you’ve saved to date once you’ve reached your preservation age, which will depend on what year you were born.

See the table below to work out what your preservation age is.

Your preservation age

Date of birth	Preservation age
Before 1 July 1960	55
1 July 1960 – 30 June 1961	56
1 July 1961 – 30 June 1962	57
1 July 1962 – 30 June 1963	58
1 July 1963 – 30 June 1964	59
1 July 1964 and onwards	60

How might a TTR pension create more financial flexibility?

If you’re employed

By setting up a TTR pension, you could choose to work less, or continue working the same hours while salary sacrificing or making personal contributions into super (some which may be tax deductible). In both cases, you could use the income from your TTR pension to supplement any reduction in your take-home pay.

If you’re eligible, you’ll also be able to continue receiving super guarantee contributions, which your employer is required to make into your super fund.

If you’re self-employed

A TTR pension works in the exact same way, except self-employed people may not be able to set up a salary sacrifice arrangement. This is where you get your employer to make additional contributions into your super fund out of your before-tax income, if you choose to.

What you can do as a self-employed person is make personal contributions into super, which may be tax deductible. If you happen to be an employee of your own company, you could however arrange to swap part of your pay for salary sacrifice contributions.

How much can I withdraw from a TTR pension?

A TTR pension doesn’t allow you to withdraw your super as a lump sum. You can generally only do that once you’ve reached your preservation age and met certain conditions of release, such as retirement.

What you can access is between 4% and 10% of your super each financial year, but until 30 June 2022 you may withdraw as little as 2%. This figure was reduced to provide greater flexibility during the COVID-19 pandemic.

It’s also worth noting that the income you receive is based on the amount you have in your super, so you won’t be guaranteed an income for life. Also, by drawing down on your super, you may be reducing the amount you have left to fund your retirement.

How are TTR pensions taxed?

• • Up to age 60, the taxable amount of your income from a TTR pension is taxed at your personal income tax rate, less a 15% tax offset.

• • Once you turn 60, any income from your TTR pension is tax free.

• Investment earnings are subject to the same maximum 15% tax rate that applies to super accumulation funds.

What other things might I need to consider?

• • Talking to your super fund, as not all funds provide TTR pensions

• • Figuring out if you want to reduce your work hours

• • Thinking about your income sources and calculating your income needs

• • Finding out what your government entitlements are, as there may be implications by commencing a TTR pension

• Your investment options, as returns are tied to movements in investment markets, so may go up or down.

What happens when I do eventually want to retire?

Once you reach age 65 or advise your super fund that you’ve retired permanently, your TTR pension will automatically convert to an account-based pension, which may have more advantages.

An account-based pension will give you a regular income in retirement and you won’t be limited to what you can withdraw, but there will be annual minimum withdrawal amounts.

If you’re considering withdrawing your super as a lump sum down the track, there will also be issues and tax implications to think about.

Before deciding if a TTR strategy is right for you, speak to us to help you understand the possible benefits and implications for your particular circumstances.

©AWM Services Pty Ltd. First published October 2021

Whether you’re doing it because you want to travel, study or start a family, taking a career break can really affect your financial future. Thankfully, there are ways to help keep your superannuation in shape.

Different types of breaks from your career can have different impacts on your super savings. In some cases, such as taking annual and long-service leave (unless on termination), you’ll still get paid a regular income and receive superannuation contributionsⁱ, so there won’t be an impact at all.

If you’re a full-time employee, you can usually also take 10 days paid sick/carer’s leave annually and still be eligible for SG payments from your employerⁱⁱ(the number of days may be on a pro-rata basis for part-time employees). In other instances, you may forego superannuation if you take a career break, even if your employer commits to hiring you back at the end of your time away from work.

Tips for managing your super on a career break

When it comes to a career break, many people start planning their exit from the workplace well in advance. As part of this planning, you might want to consider contributing extra into your super as a way to minimise any impact on your retirement savings.

Concessional contributions

Concessional contributions are one way to do just this. There are two types of concessional contributions:

• • Salary sacrifice contributions are pre-tax contributions taken from your salary before your income tax is calculated. This is on top of what your employer might pay you under the Superannuation Guarantee.
  • Personal deductible contributions are voluntary contributions you can make using after-tax dollars (such as when you transfer funds from your bank account into your super), then claim a tax deduction for these payments.

Because concessional contributions are generally taxed at 15% which is usually lower than most people’s personal income tax rateⁱⁱⁱ, this can be a tax effective way to boost your super.

If you’re making contributions to your super, keep in mind that there are limits on the amount you can contribute each year.

The good news is that if you do take a career break, you may be able to make extra concessional contributions above the general cap using ‘carry forward’ arrangements. If you’re eligible, this allows you to access unused concessional cap amounts from previous years and add them to the current year instead – without paying additional tax^iv.

Spouse contributions

If your spouse is taking a career break, you may choose to help their super to grow by making a spouse super contribution. If your partner earns under $40,000, and you meet the other eligibility requirements, you can make after-tax contributions into their super, and may be eligible for a tax offset as well, depending on their income and your contributions^v. Keep in mind that there are limits for how much can be contributed.

Contribution splitting

In addition to contributing directly into your spouse’s superannuation account, you can opt to transfer some of the super you recently contributed to your own account, into theirs^vi. You can typically redirect up to 85% of your concessional super contributions from the previous financial year.

Government co-contributions

The government’s co-contribution scheme is designed to help boost savings in super funds of low and middle-income earners. If you’re in this category and make personal (after-tax) contributions to your fund, the government may also make an annual contribution of up to $500^vii. You don’t need to apply – it will happen automatically after you’ve lodged your tax return, provided you’ve given your tax file number to your super fund.

Other ways to keep on top of your super

In addition to making contributions into your super account, there are other ways you could nurture your nest egg while on a career break. You could look at consolidating your super – that is, bringing all your super together into one account. It could save you time and money on managing multiple fund fees. Although before you consolidate, consider whether you’ll pay any exit or withdrawal fees from your other super funds and check the features and benefits you have in your other super funds to make sure you’re not losing anything that’s important to you (like insurance). We can help you weigh up the pros and cons of consolidating.

Also, make it a priority to monitor how your super account and its investments are working for you. Your needs and attitudes toward investing will likely change at different stages of your life, and understanding how your money is growing accordingly will help you plan for your financial future.

What to keep in mind

• • If you exceed the super contribution limits, additional tax and penalties may apply.

• • The value of your investment in super can go up and down. Before making extra contributions, make sure you understand and are comfortable with any potential risks.

• • The government sets general rules about when you can access your super, which means you typically won’t be able to access your super until you retire.
  • If you’re 65 or over and making contributions, you generally need to satisfy work test requirements and be under age 75.

i Australian Taxation Office: Checklist: Salary or wages and ordinary time earnings

ii Australian Government, Fair Work Ombudsman: Paid sick and carer’s leave

iii Australian Taxation Office: Tax on contributions

iv Australian Taxation Office: Carry-forward unused concessional contributions

v Australian Taxation Office: Super-related tax offsets

vi Australian Taxation Office: Contributions splitting

vii Australian Taxation Office: Super co-contribution

©AWM Services Pty Ltd. First published May 2021

Salary sacrificing into super involves reducing your take-home pay to put more money away for your retirement. See what you need to know.

Salary sacrificing into super is where you choose to have some of your before-tax income paid into your super account by your employer. This is on top of what your employer might pay you under the super guarantee, which is no less than 10% of your earnings, if you’re eligible.

Making salary sacrifice contributions does involve a reduction in your take-home pay, but it also means you could increase your retirement savings while also potentially reducing what you pay in tax. If you’re thinking about setting up a salary sacrifice arrangement, here are some things to consider.

What can I contribute?

You decide how much you want to contribute (as long as you don’t exceed super cap limits) and whether it’s a one-off payment, or something you can afford to do regularly.

How much I can contribute?

You can’t contribute more than $27,500 per year under the concessional super contributions cap or penalties will apply. It’s also important to note that contributions made into your super as part of a salary sacrifice arrangement are not the only contributions that count toward this cap.

Other contributions that count toward your concessional contributions cap typically include:

• • Compulsory contributions your employer pays under the super guarantee, including contributions from any other jobs you may have held in the same financial year.
  • Contributions you make using after-tax dollars which you choose to claim a tax deduction for.

What are the potential tax benefits?

If you choose to reduce your before-tax income by salary sacrificing into super, a potential benefit is you may be able to reduce what you pay in income tax for the financial year.

That’s because contributions made via a salary sacrifice arrangement are only taxed at 15% if you earn under $250,000 a year, or 30% if you earn $250,000 or more a year, with most people generally paying more tax on their income than they do on salary sacrifice contributions.

There could also be further tax benefits as investment earnings made inside the super environment also benefit from an equivalent tax saving, which could make a difference when you do eventually withdraw your super savings and retire.

How do I set up a salary sacrifice arrangement?

If salary sacrificing into super is right for you, here’s a quick checklist for how you could set this up.

Make sure your employer offers salary sacrifice

You will need to confirm with your payroll team at work that your employer offers this type of arrangement. If not, you may be able to achieve broadly the same benefits by claiming a tax deduction on contributions you may choose to make using after-tax dollars, but you’ll need to consider whether this is right for you.

Decide how much you want to salary sacrifice, how often and when

You might want to salary sacrifice on an ongoing basis, or as a one-off. Also, you can’t salary sacrifice income that you’ve already received, such as a bonus or leave entitlements, so you’ll need to act well before this money is paid into your regular bank account if you want to salary sacrifice it.

Notify your employer and get any agreement in writing

If you can salary sacrifice (and you know how much, how often and when you want to do it), contact your payroll team at work to find out what information they need. Ask them to confirm in writing when your contributions will start being paid, so you can check that the contributions are being received into your super account.

Make sure you don’t exceed the concessional contributions cap

If you do exceed the cap, additional tax and penalties may apply. Remember, the cap applies to all concessional contributions, whether they’re made into one or more super accounts.

It’s also worth noting that in addition to your annual cap, you may also be able to contribute unused cap amounts accrued since 1 July 2018, if you’re eligible. This broadly applies to people whose total super balance was less than $500,000 on 30 June of the previous financial year.

Everyone’s different, so if you’re thinking about setting up a salary sacrifice arrangement, consider your circumstances and whether it’s the right thing for you.

©AWM Services Pty Ltd. First published July 2021

Running a few simple checks on your home loan could potentially save you thousands of dollars over the life of your loan.

For many of us, paying off a home loan is likely to be one of the biggest regular expenses in our budget. And it could stay that way for up to 30 years. But that shouldn’t mean you ‘set and forget’ it for the life of the loan.

Running a few simple checks will help you decide whether your home loan is still right for you, or whether you should be looking for a better deal. Here’s how to get started.

Find out all the home loan features

Getting your head around all the types of home loans available can be confusing. It’s even more so when each of them comes with a plethora of features, making a loan appealing (or unappealing) for different reasons.

Some (generally variable-rate loans) come with redraw facilities, which can be a handy home loan feature if you’ve made extra repayments in the past and need to access that cash for an unexpected expense.

Others have an offset account, which is a bank account linked to your loan. Any cash in the account is offset daily against your home loan principal, essentially reducing the interest you pay.

These features can sound good in theory, but they may also attract additional fees. For instance, the redraw feature on some home loans may have associated fees and withdrawal limits. An offset account may have an annual fee that more basic home loans may not. It’s worthwhile checking which features you have bundled into your loan, and what they’re costing you.

Understand your home loan interest rate

What interest rate are you currently paying on your home loan? With many first-home buyers borrowing hundreds of thousands of dollars, there’s a big financial incentive to do a health check on your home loan.

Unfortunately, comparing loans is not as simple as looking at interest rates. While it’s easy to be lured into a new agreement by a rate that seems lower, like many things in life, appearances can be deceptive.

There are two rates to consider when re-evaluating the interest payable on your loan: interest rates and comparison rates.

The interest rate is the annual interest cost for borrowing money, but it doesn’t take into account any fees. The comparison rate incorporates the annual interest rate as well as most upfront and ongoing fees, providing a clearer picture of how much you’ll be up for.

If you’re looking at switching providers, it’s a good idea to use comparison rates as your guide across various offerings. However, the comparison rate is calculated based on a $150,000 principal and interest loan over a 25-year term, so it’s not necessarily an accurate rate for your circumstances.

Ask to reduce your home loan interest rate

If you find a lower interest rate on the market, you don’t automatically need to change. First, use a home loan comparison calculator to evaluate the two loan types side-by-side, and a home loan repayments calculator to estimate how much your ongoing mortgage repayments could be.

Next, you could contact your current lender and tell them you’re thinking about switching. If you have a good credit rating and more than 20% equity in your homeⁱ, you may be in a better position to negotiate.

If you’ve found a better deal and are still considering making a switch, be aware that the costs of refinancing may outweigh the savings made by switching. If you decide to go ahead, there are a number of steps to navigate when making the switch. Next, you could contact your current lender and tell them you’re thinking about switching.

Should you make the home loan switch?

If you do your homework (or get a mortgage broker to do it for you), it’s possible you’ll find a home loan option that offers a lower interest rate, lower fees, more flexible repayment options or better features than the one you have.

Get started in 3 easy steps

1. Find out the features of your home loan
2. Understand your home loan interest rate
3. See if you can get a better deal, or need to switch

i Moneysmart.gov.au: Switching Home Loans