Recent research has revealed that the more thought you give to your super, and the more you understand your funds’ investment strategy, the better placed you’ll be in retirement. Mercer Human Resource Consulting (Mercer) found that working Australians will rely heavily on superannuation to fund their retirement despite having limited knowledge about their super fund and their non-super investments.
Of the people surveyed by Mercer, only 3% were classed as being “savvy”, followed by 10% of people who had a “strong understanding”. However, more than half the respondents had only a “basic” or “lower level” knowledge about super or retirement planning.
Chief Executive of Mercer, Peter Promnitz, believes “The impact on the bigger picture is that low levels of fi nancial literacy may be hurting Australia’s ability to support an ageing population. It may also limit the quality of a person’s lifestyle in retirement, their overall fi nancial well-being and confi dence at work.”
Mercer also surveyed retired Australians to see what advice they would provide to those that are still working.
Recommendations from retirees surveyed were to:
• Become better educated
• Start saving early
• Plan for the future
• Don’t be afraid to ask for help from a fi nancial adviser
• Appreciate the benefi t of accumulating assets
• Put more into super.
Recently proposed changes to the super system fi t well with the research fi ndings as they are broadly designed to make super simpler to understand and to encourage Australians to start saving earlier in life.
Following the implementation of these reforms, a number of changes will signifi cantly improve the attractiveness of super in retirement. For example;
• Reasonable Benefi t Limits (RBLs) will be abolished
• Lump sum tax will be abolished
• Pension income will be tax free
Put simply – the amount of money that you can save in super will be unlimited and will get extremely favourable tax treatment upon withdrawal, particularly as you near retirement. While the previous limits on super benefi ts have been removed, tougher limits on contributions have been introduced. In this new super regime, the key is to start planning and saving early to make the most of the generous tax treatment on end benefi ts. If you leave your run too late it may limit your ability to implement various strategies,
including your ability to generate tax effective income.
Tax effective income
As you get closer to retirement, combining salary sacrifi ce and a super pension is an exciting opportunity to fast track your retirement savings.
New Transition to Retirement regulations allow you to access your super at preservation age, without having to retire or terminate employment, provided the benefi ts are taken as a non-commutable income stream that may be rolled back into the superannuation environment at a later date should circumstances alter. When combined with other superannuation strategies, this opens up a world of opportunity when thinking about funding your retirement.
Individuals seeking to increase their super accumulation have used the Transition to Retirement “income swap” strategy where they enter into a salary sacrifice arrangement with their employer, reducing their salary income,
and at the same time, starting a Transition to Retirement income stream to replace
this salary. The ultimate aim of this strategy is of course for a person to end up with more in super than if they did nothing. With super pensions becoming tax-free from age 60 and the continuing ability to salary sacrifice up to age 75, this strategy is likely to provide significant value in your retirement planning. However, if you haven’t saved sufficient super benefits during your younger years, then this strategy may be beyond your reach. So it is imperative to start planning early to be able to use this strategy as you approach retirement. Gone are the days when retirement planning started at age 65. Planning for your retirement needs to start at an early stage of your working life.
If you have any questions or need help to understand or implement any of these strategies, the team at Estate Planners Australia would be happy to help.