Superannuation Discussion + market volatility

[QF WP]

@Pushka did you consider that the tax on investment earnings within an income stream product is zero, versus 15% (although it can be reduced) within the accumulation phase? Parking the majority of the funds into a retirement income stream product will therefore earn you more versus maintaining it in an accumulation account, notwithstanding that you are obliged to take out the minimum drawdown based on your ages. Doing an income swap strategy (taking pension income tax free and salary sacrificing up to the contribution caps) whilst still working is an excellent idea.

 

[Pushka]

@Pushka did you consider that the tax on investment earnings within an income stream product is zero, versus 15% (although it can be reduced) within the accumulation phase? Parking the majority of the funds into a retirement income stream product will therefore earn you more versus maintaining it in an accumulation account, notwithstanding that you are obliged to take out the minimum drawdown based on your ages. Doing an income swap strategy (taking pension income tax free and salary sacrificing up to the contribution caps) whilst still working is an excellent idea.

Oh yes I realised that. I just didn't appreciate how much of a difference that made. We didn't put everything into the IS because we didn't want to have to withdraw too much, knowing there was a minimum of 5% drawdown. So we had to find a sweet acceptable spot. Through SS it means we top up and also reduce personal tax and especially Medicare. We will reapply for the Seniors Health care card too for next FY.

 

[Brissy1]

I

Oh yes I realised that. I just didn't appreciate how much of a difference that made. We didn't put everything into the IS because we didn't want to have to withdraw too much, knowing there was a minimum of 5% drawdown. So we had to find a sweet acceptable spot. Through SS it means we top up and also reduce personal tax and especially Medicare. We will reapply for the Seniors Health care card too for next FY.

It should be easy to compare the fund's historical pension vrs accumulation earnings to help in deciding. Of course if one (or partner) is eligible to make non-concessional contributions (i.e considering the general transfer balance cap) of the extra drawdown, (not as tax efficient as SS, granted, but additional to) wouldn't it be a no-brainer to maximise amount in pension phase?

 

[Pushka]

I

It should be easy to compare the fund's historical pension vrs accumulation earnings to help in deciding. Of course if one (or partner) is eligible to make non-concessional contributions (i.e considering the general transfer balance cap) of the extra drawdown, (not as tax efficient as SS, granted, but additional to) wouldn't it be a no-brainer to maximise amount in pension phase?

That's an interesting point. I've never seen any tool that allows this comparison and I didnt even think about it prior to this. It's turned our thinking upside down tbh. We'd always tried to preserve drawing down as long as possible. It was only my brother who is a few years older than me and in the same fund started saying that he's been withdrawing for years and his amount keeps increasing. (Well, it went a bit awry around July? last year but now has shot ahead.). Of course I knew about the withdraw from pension then SS that we could start in our fifties, but we had a SMSF back then and it wasn't so obvious to us. I wonder what else I have been missing.....

Again we left a sizeable amount in the accumulation phase because we don't want to have to withdraw more than what we need.

 

[SYD]

Again we left a sizeable amount in the accumulation phase because we don't want to have to withdraw more than what we need.

You’re also paying 15% tax on that residual accumulation fund, whereas the pension fund is not - another factor that can help a pension account actually grow even though you might be drawing down.

 

[Pushka]

You’re also paying 15% tax on that residual accumulation fund, whereas the pension fund is not - another factor that can help a pension account actually grow even though you might be drawing down.

I guess because we don't really see that as much of the tax withheld is reflected in the Unit cost rather than the amount in $ that the taxes withheld (eg CGT) are hidden. Tax on contributions is shown.

And we can't always assume that the IS will grow so I'm just mindful right now of keeping a lid on things. Baby steps. If it wasn't for that minimum withdrawal rate I'd put most of it into the IS.

 

[tgh]

We have been drawing the minimum pension for more than 15 years and the fund balance has continued to grow.
I had a heap of what if spreadsheets at the start but would never in my wildest dreams expected to be back paying tax.
Of course when we started a pension there were none of these transitional decorations that earn fees for managers

 

[Pushka]

We have been drawing the minimum pension for more than 15 years and the fund balance has continued to grow.
I had a heap of what if spreadsheets at the start but would never in my wildest dreams expected to be back paying tax.
Of course when we started a pension there were none of these transitional decorations that earn fees for managers

Paying tax? How so?

 

[CaptJCool]

From the AFR Today p26
Quite a lengthy article

Superannuation funds have quietly started paying retirement ‘bonuses’

Super funds are paying out millions of dollars in retirement “bonuses”. But what are they, and does your fund offer one?

www.afr.com

 

[Pushka]

From the AFR Today p26
Quite a lengthy article View attachment 374291

Superannuation funds have quietly started paying retirement ‘bonuses’

Super funds are paying out millions of dollars in retirement “bonuses”. But what are they, and does your fund offer one?

www.afr.com

And I just posted about this yesterday. Does AFR read AFF?

Mine was $4900 posted on Feb 1. I wasn't expecting it. Knew nothing about it.

This bit is interesting "There is no legal requirement to compensate super savers for CGT tax withheld.". So until recently they've been hanging on to it.

 

[CaptJCool]

And I just posted about this yesterday. Does AFR read AFF?

Well let’s posit perhaps perhaps perhaps
The timeframe was as tight as separate ticket connections taking advantage of those cheapie “tax savings” J fares ex Asia… in fact your $4,900 could pay for 1.5

 

[Brissy1]

any tool that allows this comparison

No tool, just look at the fund's stated annual returns for, say, Balanced pension/Balanced accumulation. Difference is tax.

 

[Brissy1]

From the AFR Today p26
Quite a lengthy article View attachment 374291

Superannuation funds have quietly started paying retirement ‘bonuses’

Super funds are paying out millions of dollars in retirement “bonuses”. But what are they, and does your fund offer one?

www.afr.com

So where (who) is this money coming from? Are accumulation accounts being credited with less earnings than they otherwise would? Winners and losers, better to be fair.

 

[Pushka]

So where (who) is this money coming from? Are accumulation accounts being credited with less earnings than they otherwise would? Winners and losers, better to be fair.

It's reflected in the Unit price I guess. A slightly reduced Unit price?

 

[Pushka]

HESTA. Top one is income stream. Rate of return on initial $1000 for 10 years.



Accumulation fund. I don't know why they haven't used all the indicators.



To be honest there isn't the information there that would enlighten me on the different performance levels.

 

[QF WP]

The difference in returns is what to look at @Pushka - choose any option that is in both funds. look at the end value and you’ll see a reasonable difference between them at the 10 year mark. I believe Balanced Growth (purple line) is ~$2,200 in accumulation and ~$2,800 in pension. The difference is the reduced taxation (both the 15% tax differential and often the utilization of franking credits in pension funds). So extrapolate $600 per $1K over 10 years, for your balance. Take it even further - to your life expectancy. Massive additional capital available (for you or retain for transfer to beneficiaries).

With relation to fearing taking higher income levels early, consider contributing back into accumulation what you don’t spend, in addition to salary sacrifice. You can always consider recycling increasing super balances into pension accounts once there is sufficient savings (in account balance paying 15% tax versus nil tax) - also known as re-casting. In other words, it means commuting your pension account back into accumulation then starting new pension account (with higher balance), until the point that you aren’t eligible to contribute to super any longer. Or simply starting new accounts with the accumulated balance in your super (leaving a minimum in accumulation to keep the fund open if you are continuing to contribute).

 

[Brissy1]

HESTA. Top one is income stream. Rate of return on initial $1000 for 10 years.

View attachment 374354

Accumulation fund. I don't know why they haven't used all the indicators.

View attachment 374355

To be honest there isn't the information there that would enlighten me on the different performance levels.

Pretty graphs. Need more detailed figures, perhaps they list annual return in figures elsewhere.
Here's from Au Super (for no particular reason)website for last fin year, eg Balanced 8.2235% and 9.0325% returns, so difference is tax, rate was 8.9565%
(Years ago I queried my industry fund why the rate wasn't between 10% and 15% but got a nonspecific reply like..."provisions"

 

[Brissy1]

Ah I see Qfwp replied, yes increasing your return by say 1% adds up over time as you also get earnings on those tax savings.

 

[QF WP]

@Pushka also consider having separate accumulation funds for concessional (employer SG and salary sacrifice) and non-concessional contributions (personal non tax deductible). The reason - concessional contributions form taxable component and whilst tax free to member and dependent beneficiaries, the ATO get 17% of taxable components paid to non dependent beneficiaries.

Also what is your current components now in your super fund - consider the use of the withdrawal and re-contribution strategy (legally withdrawing and re-contributing up to $330K each). It makes that re-contributed contribution tax free to anybody. But also put the re-contribution into a new fund with any other non-concessional contributions (keeping them separate as one mixed, can only be in-mixed by utilizing the same street egg).

This strategy can only be used once every 3 years and whilst you are still employed (over age 65). So there may be the opportunity to do it more than once

 

[Pushka]

@Pushka also consider having separate accumulation funds for concessional (employer SG and salary sacrifice) and non-concessional contributions (personal non tax deductible). The reason - concessional contributions form taxable component and whilst tax free to member and dependent beneficiaries, the ATO get 17% of taxable components paid to non dependent beneficiaries.

Also what is your current components now in your super fund - consider the use of the withdrawal and re-contribution strategy (legally withdrawing and re-contributing up to $330K each). It makes that re-contributed contribution tax free to anybody. But also put the re-contribution into a new fund with any other non-concessional contributions (keeping them separate as one mixed, can only be in-mixed by utilizing the same street egg).

This strategy can only be used once every 3 years and whilst you are still employed (over age 65). So there may bevopportin

Yes we did put a good chunk when we sold the family home, in 2019, I think in December. I'll check.