Super income stream strategies webinar

Transcription

1 Super income stream strategies webinar Presented by: Brett Ricchini, Financial Advisor, 2 December 2014 Create your retirement plan Maximise your Super Income Stream to fund your future lifestyle aspirations

2 Disclaimer This presentation is for general information only. Any advice in it has been prepared without taking into account your objectives, financial situation or needs. You should therefore not act on it without first taking those things into account and seeking professional advice. While all reasonable care is taken in the preparation of this presentation, to the extent allowed by legislation Crowe Horwath Financial Advice Pty Ltd (ABN AFSL Number ) accept no liability whatsoever for reliance on it. All opinions, conclusions, forecasts or recommendations are reasonably held at the time of compilation but are subject to change without notice by Crowe Horwath Financial Advice Pty Ltd. Crowe Horwath Financial Advice Pty Ltd assumes no obligation to update this presentation after it has been issued. Please read the relevant Product Disclosure Statement before acquiring any financial product. You can obtain a copy of the VISSF Account Based Pension PDS from vissf.com.au/forms-you-need or by calling

3 Our partnership VISSF More than 55 years helping education industry employees turn their super savings into a regular income stream in retirement. VISSF Pension 2014 finalist at the SelectingSuper Awards, specifically in the Retirement Product of the Year Value Choice category. Crowe Horwath has been our financial advisory partner servicing member advice needs for more than 9 years. VISSF members can arrange a complimentary initial consultation, with further financial advice provided at reduced rates. Crowe Horwath Largest provider of practical accounting, audit, tax, business and financial advice to individuals and businesses in Australia Part of Crowe Horwath International Ranked in the top 10 global accounting networks Known for delivering quality audit, tax and advisory services in more than 100 countries We re not a subsidiary of the major investment product providers we only make recommendations we believe are suitable to you.

4 Do you have big retirement plans you want to put in place? A new hobby? Fishing or sailing perhaps? Holidays? A new house? More time with the family? Did you know? There are various strategies available to help you maximise your income on your retirement?

5 Learning outcomes Understand what is an income stream Learn about the various tax components of an income stream Discover various pension strategies and how they apply Understand the importance of constantly reviewing your retirement position, even after you have retired Centrelink changes do you need to act now?

6 What is a Superannuation Income Stream? A pension paid by a superannuation fund Minimum of at least one pension payment each year, with total annual payment being at least the minimum pension In respect to the superannuation life cycle, you are referred to as being in pension mode as opposed to accumulation mode

7 When can you start a Superannuation Income Stream? General conditions of release of superannuation benefits apply attaining preservation age AND permanently retiring attaining aged 60, AND either permanently retiring, or at least cease an existing employment arrangement Reaching preservation age and commencing a TRIS attaining age 65 become total and permanent disabled, or death Born after 1 July 1960? You will be impacted by legislation which increases the preservation ages.

8 Types of Superannuation Income Streams Classes of Income Streams: Account Based Pensions (ABP) Transition to Retirement Income Stream (TRIS)

9 Transition to Retirement Income Streams (TRIS) Sometimes referred to as a working person s pension. If you ve reached preservation age, (but not retirement age) and are still working, a TRIS allows you to access some of your superannuation benefits. A TRIS must satisfy the follow conditions: Must represent a super pension balance Must pay a minimum 4% Cannot exceed 10% Limited opportunities to take lump sum withdrawals

10 Account Based Pension (ABP) General features of an ABP are similar to a TRIS. Main differences are: No 10% maximum limit you can withdraw up to 100% No restrictions apply on lump sum withdrawals May be possible to elect to have Pension paid and taxed as a lump sum For consideration: Does my TRIS automatically revert to an ABP once a condition of release is met?

11 Benefits of having a Super Income Stream Benefits at both the fund level, as well as the member level At fund level: The income earnings are tax free. Tax credits are refunded back. Earnings are allocated proportionately between taxable and tax free based on initial percentages at commencement of income stream At member level: An income stream is concessionally taxed to the member. Age 60 or over, all of the income is tax free. If you are aged less than 60, then the taxable component is taxed at your MTR with a 15% tax offset, and Tax-free component is tax free

12 Tax aspects of a Super Income Stream To understand the benefits of receiving an Income Stream you need to be familiar with some important concepts. These include: Tax-free component Taxable component Proportioning Rule

13 Tax components of a Super Benefit A superannuation benefit can be made up of the following tax components: Tax-free component Taxable components Taxed in the fund Untaxed in the fund Even when over age 60, the tax components of your superannuation interest are relevant. The taxable component is significant for the following reasons: Under 60, it is included in your assessable income On death, the taxable component can have tax payable in the hands of certain dependents (regardless of your age at the time of death)

14 The Proportionate Rule A superannuation benefit will include both tax-free and taxable components Proportionate Rule provides how the two components are calculated When an income stream is commenced, the proportions are fixed as a % of the benefit. taxable component is known as the taxable proportion tax free component is known as the tax free proportion All future earnings credited to the member s account are in line with these proportions Cannot pick between components wilfully The higher the tax free proportion, the more tax effective the benefit payments are to the recipient!

15 Tax components - Super Super Tax free component typically comprises: After-tax contributions Taxable component typically comprises: Earnings Salary sacrifice contributions Superannuation Guarantee contributions As contributions and earnings grow, the taxable proportion will become greater and the tax free proportion smaller Example Super Balance = $100,000 Taxable proportion 80% = $80,000 Tax Free proportion 20% = $20,000 Additional earnings to the fund of 10% will alter components to: Super Balance = $110,000 Taxable proportion 82% = $90,000 Tax Free proportion 18% = $20,000

16 Tax components - Pension Pension The taxable and tax free components are locked in at commencement, so the component proportion will not alter during the life of the pension. Also pension payments will be made in this proportion. Tax Free component - made up of after-tax contributions prior to fund commencement and a proportion of earnings Taxable component - comprises taxable components prior to commencement plus a proportion of earnings. Example Pension Balance = $100,000 Taxable proportion 80% = $80,000 Tax Free proportion 20% = $20,000 Additional earnings to the fund of 10% will alter components to: Pension Balance = $110,000 Taxable proportion 80% = $88,000 Tax free proportion 20% = $22,000

17 Pension Strategies

18 Pension Strategies discussed this evening Salary Sacrifice with Pension Re-contribution Multiple Superannuation Interests

19 Salary Sacrifice with Pension Strategy Gross Salary Keep as Take Home Pay Income Tax at MTR Salary Sacrifice to Super No Income Tax, but 15% Contributions Tax Income can remain the same despite sacrificing salary or Salary sacrifice can be maximised to boost super balance even more. Net Salary Start TRIS or ABP Income Tax at MTR less15% (under age 60)

20 Case Study Salary Sacrifice with Pension Jane is 56 with $500,000 in super (100% taxable) which yields 7% p.a. Jane was born before 1 July 1960 and has reached her preservation age (55 years) Jane earns $66,000 p.a. Jane currently pays tax and levies of $14,317

21 21 Case study Salary Sacrifice & Pension (cont d) What if Jane salary sacrifices to her $35,000 CC cap and commences a TRIS? Jane now pays tax of $9,067 (previously $14,317) i.e. tax saving of $5,250 Tax position in fund remains unchanged as tax payable on income under accumulation is equal to the tax payable on the CC s (given pension exemption)

22 Re-contribution Strategy Re-contribution strategy is where a benefit payment is taken from the fund and then contributed back to the fund The benefit drawn is generally as a lump sum The purpose of this is to reduce the taxable component of your superannuation interest and increase the tax free component

23 Case Study Re-contribution Strategy Jim is 61, divorced and has two adult children. He has recently ceased his employment, and will be commencing a new part time job in two weeks Jim has $600,000 in super, all taxable. Jim would like to start an income stream to supplement his reduction in salary income

24 Case Study Re-contribution Strategy (cont d) Prior to pension commencement Jim could withdraw $540,000 He could then return the $540,000 to his super fund as a tax free contribution This would change the mix of tax components within his super He could then start an income stream Jim has met a condition of release and can draw up to 100% of his super fund balance. His only SIS dependants are taxable dependants so any death benefit payments would be taxable in their hands.

25 Case Study Re-contribution Strategy (cont d) Why we like this? Jim has changed the tax mix of his superannuation income stream account Fund earnings are being then split against the new proportion mix It can mitigate against potential tax changes that may be applied to taxable portion of superannuation interest in the future (unknown risk) Potential tax saving of death benefit payments to adult children, for example after ten years Jim s pension account balance is approximately $760,000* Death Benefit Tax no re-contribution strategy - $129,200 Death Benefit Tax payable with re-contribution strategy - $12,920 $116,280 tax saving due to re-contributing ten years earlier! (Tax saving is based on balance at death but can be significant) *Assume 7% earnings and pension minimum taken over ten years

26 Multiple Superannuation Accounts Strategy There can also be benefits in having multiple income stream accounts How does this work? Income stream commences Member makes more contributions to an accumulation account A subsequent income stream commences separate to the original Remember, you cannot contribute to an income stream account. Only accumulation accounts can accept contributions.

27 Case Study Multiple Superannuation Accounts Colin is 56 and has $300,000 in super 100% taxable. He has cash assets outside that he wants to contribute to super of $100,000 He has a salary of $72,000 salary sacrificing to super He wants to commence TRIS to supplement the salary sacrifice arrangement and is prepared to have restricted access to the cash savings for the next ten years He would like to draw a pension of $25,000 PA He can either contribute the $100,000 and then start one pension OR commence a TRIS with existing super, contribute and then start a second TRIS

28 Case Study Multiple Superannuation Interests (cont d) Income Stream Balance 1 TRIS 2 TRIS 1 st Account 2 TRIS 2 nd Account $400,000 $300,000 $100,000 Tax Free % 25% 0% 100% Minimum Pension $16,000 $12,000 $4,000 Pension Taken $25,000 $12,000 $13,000 Colin s Taxable Income $90,750 $84,000 Tax after Rebate $20,527 $18,907 Net Cash Position $76,473 $78,903

29 Case Study Multiple Superannuation Accounts (cont d) Colin makes an initial tax saving of $1,620 p.a. for having the second pension account. Plus, the $100,000 term deposit is now earning income tax-free, rather than being taxed at his personal income tax rate of 39% (incl. Medicare) He is still drawing $25,000 from his super fund! What would we suggest the year that Colin turns 60? How would this strategy change after Colin is over age 60?

30 Outcomes of Strategy If you re under 60 you can minimise taxable income being drawn from super fund pension accounts, while still getting the full tax exempt income on earnings. If you re over 60 you can maximise the taxable income being drawn from your pension accounts, which are tax free to you and shelter you from future taxes on estate planning or potential super changes. Note: Additional pension accounts will attract additional pension and account fees. To find out more about fees and charges, obtain a copy of the VISSF Account Based Pension PDS by visiting vissf.com.au/forms-you-need or call

31 Income Stream Strategy requires Regular Review It is critical that members review their pension strategy and documentation regularly to ensure that the structure they have in place remains appropriate. The most common things that should be reviewed on a regular basis are: Does the income stream strategy remain relevant to current circumstances? How Legislative changes impact the existing pension strategy Tax benefits versus Centrelink benefits

32 If you currently receive a Centrelink/DVA benefit Grandfathering rules apply for income streams held before 1 January 2015 Where Centrelink/DVA benefits were being received as at 1 January 2015 This means the entitlements will continue to be assessed under the existing rules, unless you change income stream after 1 January If you have an existing income stream in place, you should ensure it is the right one for you now. After January 2015, the new deeming rules will apply if changes are made. Why? Generally provide a better outcome under the income test which gives a higher Centrelink/DVA pension entitlement Reversionary Income Streams = the benefits continue to spouse on death

33 Outcomes Income Streams are a tax effective way to fund your retirement Planning and revisiting your retirement strategy is important to maximise what you have and how your benefits are paid to your dependents There are many different strategies that can be implemented to maximise your retirement savings Superannuation does not form part of your Will. Make sure you have your super interests formally documented to ensure your benefits are paid out appropriately Centrelink changes are you going to be impacted? Act now!

34 34 Questions? Questions?

35 35 Complimentary Superannuation Health Check Level 1, 18 Synnot St Werribee Tel: