Superannuation Discussion + market volatility

[RooFlyer]

That soundd similar to the UK system where your pensiom drawing are taxed at usual income rates. Haven't done the sums but I think I'd be worse off as expecting to have a highish retirement income

Happy to be corrected (well, not really) and this is only my personal experience, but when I went into pension phase of my super, there is no tax within the fund, or my drawing off it. If I withdraw $10K from the fund one day, I keep it all. If my Super fund sells some of its CBA holding, it keeps it all - no capital gains tax - and again, it can pay that to me without loss.

The ATO sets a minimum pension you must withdraw each year.

Very useful to get some pre-retirement (say, 5 years out) tax planning and advice.

 

[Pushka]

Happy to be corrected (well, not really) and this is only my personal experience, but when I went into pension phase of my super, there is no tax within the fund, or my drawing off it. If I withdraw $10K from the fund one day, I keep it all. If my Super fund sells some of its CBA holding, it keeps it all - no capital gains tax - and again, it can pay that to me without loss.

The ATO sets a minimum pension you must withdraw each year.

Very useful to get some pre-retirement (say, 5 years out) tax planning and advice.

That's my experience too. Also when I converted part of the Accumulation Fund Super into the Pension Phase super another $5000 was put into the Pension Phase account based on predicted Capital Gains tax that would have been deducted if I'd kept that amount in the Accumulation Account and which was no longer needing to be paid to the Tax man. .

I've still got both funds going as we still receive a salary and super plus salary sacrifice. I worked out the balance between usual payg income, salary sacrifice and pension income I wanted and then drew only that amount from accumulation to pension account because of the minimum 5% withdrawal. Trying to take advantage of it all. Of course the pension account grows very nicely because of the No Tax so this year am having to draw out more.

 

[RooFlyer]

I've still got both funds going as we still receive a salary and super plus salary sacrifice. I worked out the balance between usual payg income, salary sacrifice and pension income I wanted and then drew only that amount from accumulation to pension account because of the minimum 5% withdrawal. Trying to take advantage of it all. Of course the pension account grows very nicely because of the No Tax so this year am having to draw out more.

I didn't realise you could have two accounts going, one pension tax free and other accumulating while you are still employed. Or is it the 'transition to retirement' thing? (No need for much personal detail though )

 

[SYD]

I didn't realise you could have two accounts going, one pension tax free and other accumulating while you are still employed. Or is it the 'transition to retirement' thing? (No need for much personal detail though )

If you reach your TBC any leftover has to stay in an accumulation fund. Which any further contributions would go into - up until the age cap for ongoing contributions - 70 something?

Yes, I believe it the TTR scheme allows you convert some funds to pension while still working.

I might be wrong, but I believe you can convert some of your funds (under the TBC) to a pension account and retain some in accumulation - not sure why you would but maybe if you were concerned about limiting the amount of mandatory drawdown?

I’ll be converting the max in due course and it’s quite likely that I’ll be reinvesting $27,500 pa of that back into the accumulation fund!

 

[Pushka]

I didn't realise you could have two accounts going, one pension tax free and other accumulating while you are still employed. Or is it the 'transition to retirement' thing? (No need for much personal detail though )

It's two separate accounts and so has different tax treatments. The first account is an original Super account that everyone except SMSF have, that accepts the usual SG and SS payments. Taxed on contributions and taxed on growth. Then we applied for the Income Stream account (pension fund) that was set up for each of us in a week and tax free pension payments started kicking in. No tax on growth nor tax on our payments. We can take lump sums out from either.

When we decide to collapse completely the Superannuation account when we no longer receive salary, we cannot combine those funds into the existing Pension income stream (not allowed by someone) so we can either cancel that exisiting income stream and combine with any monies from the Superaannuation account or we can simply have two Pension Income Stream accounts. This is all set up through HESTA.

 

[RAM]

Not only that, but we get a tax refund of franking credits on shares held paid to us, because, well, I dunno, but its a nice little earner every year.

Putting on hazmat suit.

No matter what the well thought out Govt initiative is supposed to do/achieve - a few creative thinkers will come up with a way to plunder it.

Keating bringing in Dividend Imputation was designed to remove the double taxation of dividends. Then some smart people came up with many variations on a theme.

For example, with the purest of intentions I created a new security immediately before taxation of super commenced. Whilst many of the largest Super investment managers flailed and acted like Chicken Little - using this new security saw investors (both retail & wholesale) in the pure cash option earn a higher after-tax return on the cash option (relative to the benchmark, not due to rising interest rates) than before the earnings tax was introduced. Unfortunately this idea of mine didn’t stay confidential (so much for the contract) and after little more than a year the secret was out.
All of a sudden a number of household name companies got in on the act (on steroi_s) perhaps stepping well over the line.
Fast forward to today and certain equally household names mega high net wealth individuals are harvesting millions, tens of millions and in one case over $100m of excess franking credits.
Yet do the various political parties REALLY want to fix this unintended consequence (was it really?) or not?
How many people aka voters are receiving Franking Credit refunds each year of over $5 million? Or over $1 million? Less than 1,000 people.
So, if a politician really wants to stop the rorting why didn’t they provide the hard data (which is available to them)?
For example using educated guesswork - “The intention for dividend imputation was not to create a way for the top 0.01% of taxpayers to not pay tax on investment earnings but to ensure the bulk of taxpayers were not taxed twice on dividends. Some have taken advantage of the system to receive cash refunds in the millions. This is not what was intended and is not fair for everyday workers, so from X/Y/2025 the maximum amount of cash refunded for excess franking credits will be $500,000. Using the latest figures available from the ATO (made up but I suspect not too far out), this will see less than 1,000 people impacted and will save the Federal Budget an estimated $38 billion over the forward estimates. Money that can be spent improving the health outcomes for our aging population.”

Won’t happen though will it?

 

[drron]

I didn't realise you could have two accounts going, one pension tax free and other accumulating while you are still employed. Or is it the 'transition to retirement' thing? (No need for much personal detail though )

You can have more than 2. I got my second when I began working again after my first retirement.
the third came about from a crafty accountant as my income was irregular doing locums and i had a 5 month break leading up to 30/6. Less then for the tax man when I has another 7 years of part time locums so 4th stream came into effect.

 

[Flashback]

That sounds similar to the UK system where your pension drawing are taxed at usual income rates. Haven't done the sums but I think I'd be worse off as expecting to have a highish retirement income

Although we don't get taxed here (in the UK) paying into our pension, in fact there's tax benefits to do so as the UK gov will match contributions (for those on PAYE...... i.e., permies) and for those running companies it nicely reduces your Corp tax liability.

 

[JohnK]

At the moment there’s not a great choice of what one can do with super when it’s placed into pension phase

Take it as a lump sum and blow it and go on age pension ….

And that is how it should remain. Super is our money.

When the government ensures that no one receives age pension (or special benefit) without having contributed to taxation then they can dictate what I can do with my money.

Way too easy for someone to receive age pension in Australia without having contributed a single cent to taxation. In fact some go from unemployment phase to pension phase without having worked a day in their lives.

 

[RAM]

And that is how it should remain. Super is our money.

When the government ensures that no one receives age pension (or special benefit) without having contributed to taxation then they can dictate what I can do with my money.

Way too easy for someone to receive age pension in Australia without having contributed a single cent to taxation. In fact some go from unemployment phase to pension phase without having worked a day in their lives.

On to the 6th generation of some families who have never worked, so go from unemployment benefits and State housing to pension and State housing.
Serious unintended consequences.

 

[Brissy1]

If you reach your TBC any leftover has to stay in an accumulation fund. Which any further contributions would go into - up until the age cap for ongoing contributions - 70 something?

Yes, I believe it the TTR scheme allows you convert some funds to pension while still working.

I might be wrong, but I believe you can convert some of your funds (under the TBC) to a pension account and retain some in accumulation - not sure why you would but maybe if you were concerned about limiting the amount of mandatory drawdown?

I’ll be converting the max in due course and it’s quite likely that I’ll be reinvesting $27,500 pa of that back into the accumulation fund!

$30,000 now.
So once retired and in the appropriate age range you can withdraw $30k tax free from pension ac, make a concessional contribution to your accumulation ac (and pay 15% tax) even if you're above the TBC, transfer the $25500 back to pension ac (if under the TBC), and claim a $30,000 income tax deduction.

For some, Australia's Progressive Tax Rates inc medi are 18%/32%/39%/47%/15%(on your top $30k).

I say some people "can" do this, I don't exactly. This is not advice, I'm not an accountant.

EDIT, To be clear, retired. This is not for persons who receive Employer Contribution

 

[SYD]

$30,000 now.

Yes, you’re correct and I’ve already started increasing my monthly contributions accordingly!

So once retired and in the appropriate age range you can withdraw $30k tax free from pension ac, make a concessional contribution to your accumulation ac (and pay 15% tax) even if you're above the TBC, transfer the $25500 back to pension ac (if under the TBC), and claim a $30,000 income tax deduction.

I assume you mean $30k throughout the year (from the pension stream) ie not a lump sum? I’m not in pension phase so don’t know the specie ins and outs.

I’m using the remaining years to to my preservation age (and beyond) to shift post tax funds into Super.

 

[Brissy1]

I assume you mean $30k throughout the year (from the pension stream) ie not a lump sum? I’m not in pension phase so don’t know the specie ins and outs.

Either, monthly or once yearly irrelevant. And source of $30k is irrelevant, just giving an eg of someone who doesn't have $30k laying around outside super; but if you do then that's another way of transferring assets into a superfund.

Not advice, and repeating not for persons who receive Employer Contribution

 

[SYD]

Either, monthly or once yearly irrelevant.

Yes, for contributions - correct.

And source of $30k is irrelevant, just giving an eg of someone who doesn't have $30k laying around outside super; but if you do then that's another way of transferring assets into a superfund.

No, my clarification was about taking a lump sum from a pension account? I didn’t think that was possible? Only an accumulation fund?

But if you’re receiving more per month from the pension stream than you require, then pumping that back into the accumulation fund could suit many.

I certainly plan to do that while I can offset the deduction for non-super taxable income.

 

[CaptJCool]

The way it was explained to me was to do two things

1. Lower your taxable income by effectively “salary sacrificing” into the superfund (pay 15% not 32, 39 nor 47%. This WORKS if you have a taxable income but if you don’t like when in pension phase super is predominantly 0% tax.

2. It washes the death taxes out of super. If you leave your superfund estate to dependants then they pay 22% plus tax on the receipt of the super money. By contributing it via “tax deduction”, it makes it fully tax-free for inheriting dependants

Please note subject to TBC limits etc

And this is not advice just my view of the two major reasons why people do this

 

[MARTINE]

The way it was explained to me was to do two things

1. Lower your taxable income by effectively “salary sacrificing” into the superfund (pay 15% not 32, 39 nor 47%. This WORKS if you have a taxable income but if you don’t like when in pension phase super is predominantly 0% tax.

2. It washes the death taxes out of super. If you leave your superfund estate to dependants then they pay 22% plus tax on the receipt of the super money. By contributing it via “tax deduction”, it makes it fully tax-free for inheriting dependants

Please note subject to TBC limits etc

And this is not advice just my view of the two major reasons why people do this

Understood @CaptJCool — as with all things super this is the situation as of 1435 on Tuesday 4th December 2024… wait a week and it might be different

 

[Pushka]

$30,000 now.
So once retired and in the appropriate age range you can withdraw $30k tax free from pension ac, make a concessional contribution to your accumulation ac (and pay 15% tax) even if you're above the TBC, transfer the $25500 back to pension ac (if under the TBC), and claim a $30,000 income tax deduction.

For some, Australia's Progressive Tax Rates inc medi are 18%/32%/39%/47%/15%(on your top $30k).

I say some people "can" do this, I don't exactly. This is not advice, I'm not an accountant.

EDIT, To be clear, retired. This is not for persons who receive Employer Contribution

Except you can't add to the pension account. You've got to create a new one and combine or leave as two.

Post automatically merged: Dec 3, 2024

Yes, for contributions - correct.

No, my clarification was about taking a lump sum from a pension account? I didn’t think that was possible? Only an accumulation fund?

But if you’re receiving more per month from the pension stream than you require, then pumping that back into the accumulation fund could suit many.

I certainly plan to do that while I can offset the deduction for non-super taxable income.

You can take a lump sum from both pension and accumulation once you hit the age.

 

[Pushka]

The way it was explained to me was to do two things

1. Lower your taxable income by effectively “salary sacrificing” into the superfund (pay 15% not 32, 39 nor 47%. This WORKS if you have a taxable income but if you don’t like when in pension phase super is predominantly 0% tax.

2. It washes the death taxes out of super. If you leave your superfund estate to dependants then they pay 22% plus tax on the receipt of the super money. By contributing it via “tax deduction”, it makes it fully tax-free for inheriting dependants

Please note subject to TBC limits etc

And this is not advice just my view of the two major reasons why people do this

I'm keen to know how to wash. . Have two funds, accumulation and pension both with same industry fund. Still contribute to accumulation via working and draw down 5% pension as required to do. I salary sacrifice into accumulation. So how do I clean it up?

 

[andye]

I'm keen to know how to wash. . Have two funds, accumulation and pension both with same industry fund. Still contribute to accumulation via working and draw down 5% pension as required to do. I salary sacrifice into accumulation. So how do I clean it up?

My understanding (its complicated so happy to be corrected) is that you would need to close down the current pension account and set up a new one.

If you are under 65 and still working you can only do this if you reach a "condition of release" i.e end a current employment

You can only do it if your Total Super Balance is under the Cap and you are under 75*

The lump sum withdrawal from the pension component would be deducted from your Balance Transfer Cap so you would presumably still have space in that

Note that you can't achieve the same inheritance advantages by just drawing down more than your minimum. It has to be as a lump sum withdrawal.

(*to clarify <75 you cant make contributions to accumulation after then)

 

[Pushka]

My understanding (its complicated so happy to be corrected) is that you would need to close down the current pension account and set up a new one.

If you are under 65 and still working you can only do this if you reach a "condition of release" i.e end a current employment

You can only do it if your Total Super Balance is under the Cap and you are under 75

The lump sum withdrawal from the pension component would be deducted from your Balance Transfer Cap so you would presumably still have space in that

Note that you can't achieve the same inheritance advantages by just drawing down more than your minimum. It has to be as a lump sum withdrawal.

Yep. Sadly old enough to have full access. That cap is? And under 75 as well.