Your Superannuation

By Jason Fittler

There have been over the past months many comments in regards to superannuation and changes that may come into effect.

At present, there are no changes in regards to superannuation before parliament.

There are however comments made which indicate that it is only a matter of time before this large pool of money is looked at as a source of revenue for the government.

Let’s look at a few of the issues that may come up. 

1. Using superannuation as at tax effective vehicle for tax planning:

Superannuation, as it is at present, provides a perfect vehicle to invest money that you would like to pass on to your children. The main reason for this is super is the most tax effective vehicle available at present. The money is taxed at 15% going in and at 15% on income earned during the accumulation, and once in pension mode all income is tax-free.

The best you can do outside of superannuation is to limit your tax to 30%. Given the massive tax savings you can see why people would exploit this option.

The changes made to superannuation in 2007 were for covering your expenses in retirement and not to be passed on. I expect we will see some rules around this are tightened in the future. I expect we will see limits on how much you can put into superannuation or at least on how much will receive the reduced rate of tax.

2. Large tax breaks for the rich when using super:

Superannuation is tax at a flat rate of 15%, which means if your income is less than $45,000, per annum it makes no sense to salary sacrifice into super. The reason being you will be taxed at a higher rate.

Your tax rate on $45,000 per annum is approx. 15%. As your income gets higher, you save more tax by salary sacrificing into superannuation.

For example if you earn $120,000pa your tax rate is around 30%, so salary sacrificing $10,000 into super will save you $1,500 in tax. As your income increases so does the tax savings.

This issue here is that super contributions are much more attractive to the higher income earners as they have the extra disposable income they can put into super and it saves them tax.

This door is partly closed for people earning over $300,000pa as they do pay the extra tax.

I expect however this higher limit will be reduced to catch more people by increasing the age at which you will be able to access your superannuation.

The Government has already increased the age at which you can access the age pension, do not confuse this with the age you can access your super.

At present this has stayed the same for those born after 1964 it is age 60 between 1960 and 1964 it varies between 56-59 and if before 1960, it is age 55.

I do not expect these dates to change as this only encourages people to save inside super if you want to stop work before age 70 that is when the Age Pension will kick in for me. 

Superannuation has always been for the purpose to take pressure off the Age Pension system not to provide estate planning.

As such, I expect that there will be changes in the next couple of years.

The best way to control the outcome is through a Self-Managed Super Fund.