ANZ

Retirement Opportunities

Superannuation has long been one of the most tax-effective investment vehicles available to working Australians. And, the Government's 'Better Super' reforms have made improvements to help people save for retirement and those who are about to retire.

Tax-free super payouts for people over 60

If you're 60 years of age or over, all benefits you receive from a taxed super fund are now exempt from income tax. This change includes lump-sum withdrawals and payments from an income stream investment, such as a pension.

And you won't have to declare these benefits in your annual income tax return.

Tax is still payable on any benefits paid if you're under 60 years of age, though the rules have been simplified and streamlined.

New super contribution rules

Age-based deduction limits have now been replaced with just one set of limits, as set out in the following table.

Deduction Limits

Contribution Period

Annual Contribution Limit (per person)

1 July 2006 – 30 June 2007

Under 35 years

$15,260

Age 35-49

$49,385

Age 50 plus

$105,113

1 July 2007 – 30 June 2012

Under 50 years

$50,000

Age 50 plus

$100,000

1 July 2012 onward

Any age

$50,000

In any given year, the first $50,000 of employer and personal deductible contributions are now taxed at only 15%, and any amount above this will attract the top marginal tax rate.

People aged 50 years and over are allowed to contribute $100,000 per year and be taxed at the concessional rate until 30 June 2012, and $50,000 per year thereafter.

So if you are 50 years old or over, you may like to consider taking the opportunity that is available from 1 July 07 until 1 July 2012, and sacrifice more of your before-tax salary into superannuation and potentially pay less tax. It's a great way to boost retirement savings, particularly since you may not be able to afford to leave all your super decisions until a couple of years before your retirement.

Tax-free lump sum payments - life insurance

Insuring through super funds makes sense for many Australians, and the new rules make this even more attractive for some. Not only will part of any TPD (Total and Permanent Disability) invalid payment be tax-free, there may also be some tax concessions when making contributions to pay the premiums.

If you hold your life insurance in super, your dependant beneficiaries (such as your spouse or child under 18 years) may receive unlimited tax-free lump sum payments in the event of your death from 1 July 2007.

If the lump sum benefits are received by a non-dependant beneficiary (such as an adult offspring), they are generally taxed up to 16.5%. And tax concessions on your premium contributions may also be available.

If an income stream is paid to a dependant beneficiary, the income payments are now tax-free, if you or your dependant is 60 years of age or over. Otherwise, income payments (after any tax-exempt amount) will be taxed at the dependant's marginal tax rate until they reach 60 years of age (a pension offset may apply).

However, it's worth remembering that the insurance coverage available through super funds can have limitations and restrictions.

Abolished: Reasonable Benefits Limits (RBLs)

For retirees, the abolition of RBLs (the restrictions on the amount of concessionally taxed super you can receive over your lifetime) is one of the most significant changes.

It removes the main disincentive for accumulating large superannuation benefits. This is especially important for people whose super benefits are close to or have already exceeded the RBL.

Retirees no longer have to worry about complex strategies and income streams to manage the tax implications of exceeding the RBL.

The assets test and the aged pension

From 20 September 2007, the assets test becomes more generous. Instead of losing $3 of pension a fortnight for every $1,000 in assets above the relevant threshold, a pensioner will lose only $1.50 for every $1,000.

This means couples who own their home will be able to have an additional $275,000 in assets before losing all of their entitlements to the aged pension, while singles will be able to have an additional $165,000 of assets.

A financial planner can help determine whether you will become eligible for aged pension benefits for the first time, or whether you may be eligible to receive a higher part pension under the new assets test rules from 20 September 2007.

However, other changes affect how complying income streams (such as a Term Allocated Pension) are assessed for the assets test.

Deduction Limits

		Complying income streams that commenced:				Assets Test Exemption
		Before 20 September 2004				100 per cent
		Between 20 September 2004 and 19 September 2007				50 per cent
		From 20 September 2007				Nil