Government changes to super

Super has changed

Recent changes to superannuation rules may mean that you need to reconsider your investment strategies. One of our Commonwealth Financial Planners will be happy to explain the changes and what they mean for you.

Under 65? Contribute up to $150,000 a year (or $450,000 over 3 years)

To encourage you to save freely for your retirement, the government abolished its former limits (reasonable benefit limits) on how much you can have in super. You can now accumulate as much super as you like, and all of it can be withdrawn tax-free once you turn 60.

However, there are now government limits on how much you can contribute to super in any one year and still receive the favourable tax treatment provided within superannuation. The annual limits are:  

• $50,000 for concessional (deductible) contributions, i.e. employer contributions and salary sacrifice contributions. If you're aged 50 or over, a transitional cap of $100,000 per financial year applies until 30 June 2012 – commencing in the financial year you turn 50. Any contributions in excess of either cap will be taxed at a rate of 46.5%
• $150,000 for non-concessional or after-tax contributions or $450,000 averaged over 3 financial years if you are under 65 in the financial year. All contributions over the cap will be taxed at a rate of 46.5%

Maximise your super

Investment earnings on super are taxed at a maximum rate of 15%, whereas earnings on investments outside of super are taxed at your marginal tax rate (which can be as high as 46.5%). This means investing in super can provide you with great tax benefits that should steadily increase the balance. It also reduces your paperwork at tax time.

Given that you can now accumulate as much super as you like, and it can be withdrawn completely tax free from age 60, this makes super pretty hard to beat as a retirement savings tool.

As the graph below shows, the tax benefits of using super can significantly boost your retirement savings. Note, however, that moving existing investments into superannuation could trigger capital gains tax and other costs, so discuss your options with a financial planner first.

The chart shows a comparison of the projected returns of 10 years investment within superannuation versus 10 years investment in managed funds. It assumes as investment return of 7% and inflation of 2.5%. It also assumes a marginal tax rate of 46.5% for the managed fund investment and 15% for superannuation. The end balance has incorporated these taxes and does not assume tax on withdrawal. Projected returns are calculated after fees and before taxes. No allowance has been made for any contribution fees payable or for any costs from moving your investment. Fees and taxes can have a significant impact on long term returns.

Benefits for the over 60s

If you're aged 60 or more and retired, your withdrawals from super are tax-free, even if you withdraw the entire amount as a lump sum.

If you're over 60 but not planning to retire just yet, you could consider increasing your before-tax salary contributions to your super (salary sacrificing).

You could also make those salary sacrifice contributions while drawing down some tax-free income payments from your super in the form of a pre-retirement pension. This strategy may help boost your current after-tax income while still adding to your future retirement savings. The success of this ‘transition to retirement' strategy depends on a number of factors, including how much you already have saved in super. So it's important to discuss this option with a financial planner first.

Benefits for the self-employed

Self-employed people can claim 100% of personal super contributions as a tax deduction until they reach age 75. This could be a cost-effective way to reduce your total taxable income.

Benefits for small business owners

Planning to sell your small business to fund your retirement? If so, special concessions may allow you to contribute some or all of the proceeds of the sale to super without having an impact on the level of other after-tax (undeducted) contributions you can make.

Seek investment advice

If you would like to know more about how a Commonwealth Financial Planner may be able to help you, or to make an obligation-free appointment with a Commonwealth Financial Planner, call 1800 241 996 or email us.

Important information. The information contained on this web page is of a factual nature only and is not intended to constitute financial product advice. It has been prepared by Commonwealth Financial Planning Limited without considering your individual objectives, financial situation or needs. You should consider its appropriateness in light of your circumstances and consider seeking professional advice relevant to your individual needs before making a decision based on this information.

Commonwealth Bank customers who wish to obtain information about Retirement Planning may do so by contacting a Commonwealth Financial Planner. Commonwealth Financial Planners are representatives of Commonwealth Financial Planning Limited ABN 65 003 900 169, AFSL 231139. Commonwealth Financial Planning Limited is a wholly owned but non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124

Superannuation and taxation considerations are general and based on present superannuation and taxation laws, rulings and their interpretation as at April 2006