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Superannuation: When super really becomes super

Every Issue

Cite as: March 2011 85(3) LIJ, p.80

Generous tax concessions are available once you reach the age of 55.

When you reach 55 the shackles come off your super. This inevitably leads many people to ask the question: what should I do with my super?

One option well worth considering is moving your super into a “pension” style of superannuation account. Pension super accounts are advantageous because they reduce the amount you pay in tax.

As you approach the point in your life when you reduce the hours you work or stop working altogether, you will earn less money and rely more and more on your life savings and investments to pay for your life in retirement. So, reducing your tax and boosting your savings in super can give you more flexibility in retirement.

For those born before 1960, a pension style of superannuation account is accessible from 55 years of age, whether or not you are working. For those born between 1960 and 1964, a pension style of superannuation account is accessible between 55 and 60 years, depending on your exact year of birth.

There is one key across-the-board benefit of putting your super into a pension style account: net earnings and net capital gains from your investments are tax free. This means more savings are retained in your account compared with an accumulation super account, where up to 15 per cent of tax can be deducted.

Other benefits of having your super invested in a pension style of superannuation account depend on your working status. That is, whether you are working or not.

If you attain 55 and continue to work, you can elect to move your super into a “transition to retirement pension” style of account that can save you tax.

A transition to retirement pension allows you to salary sacrifice personal income into the pension account, while at the same time withdrawing an income from your pension to pay your costs of living.

The tax benefit arises as the tax on income salary sacrificed into super is only 15 per cent. In most cases, this is lower than the rate of tax on personal assessable income. The amount you will save will vary depending on your income.

The tax advantages get even more compelling when you reach 60 and then pay no tax on the income you draw down from your super pension.

It’s also worth noting that you can continue to operate a transition to retirement pension for as long as you continue to work and earn an income.

If you decide to retire altogether, your option is to move your super into a “retirement pension” style of account, which can also save you money.

A retirement pension differs from a transition to retirement pension in that there is no cap on the annual amount you can withdraw.

Like a transition to retirement pension, the tax benefits of a retirement pension increase significantly when you reach 60, as the tax you pay on income you withdraw falls to zero.

Again it’s worth noting that you can continue to operate a retirement pension style superannuation account for as long as you live.

Unfortunately, when many people reach 55 they are not aware of these benefits. They end up leaving their money in a regular super account and miss out on the tax concessions that are available from a pension.

Australians are living longer and therefore need more savings to fund their lives in retirement. Anything that supplements your retirement savings is worth having a close look at, especially when generous tax concessions are on offer that will boost your retirement savings.

If you are over 55 or are approaching 55, it would be worthwhile getting professional advice about these pension options. Your super fund should be able to help you. If for some reason they can’t, legalsuper offers both pension options and our staff would be pleased to provide you with free advice. The contact is Tina Calleja on tcalleja@legalsuper.com.au.



ANDREW PROEBSTL is chief executive of legalsuper, Australia’s largest super fund dedicated to the legal profession. He can be contacted on ph 9602 0101 or via aproebstl@legalsuper.com.au.

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