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Better Super
The Government’s Better Super rules came into effect on 1 July 2007. The rules are designed to help you make the most of your super savings, for a better retirement.
The changes are intended to help individuals increase their retirement income, to simplify the taxation of super and to give greater flexibility in how and when super can be accessed.
What are the new rules?
In brief:
- Tax free payments after age 60 - Super benefits paid from a taxed super fund to a person aged 60 or over will now be paid completely tax free. This applies for super benefits taken as a lump sum cash payment, as a pension, or as a combination of both.
- Take it out or leave it in - The compulsory payment rule has been removed. This rule previously required people over the age of 65 who were not working to either cash out their super or commence a pension. If you’re over 65 and retired, you can now take some of your super out while keeping the rest invested with your super fund until you need it. Or you can leave the whole lot invested in super for as long as you like. This greater flexibility will allow you to continue to make your super work for you.
- Reasonable benefit limits (RBLs) abolished – With RBLs abolished your super will no longer be affected by a cap on your overall balance. You'll be able to maintain a fund balance that suits you!
- Provision of Tax File Numbers (TFNs) – The need to provide your super fund with your TFN has become much more important. If your super fund does not have your TFN, employer contributions made on your behalf (including salary sacrifice contributions) will be taxed at 46.5% and you may no longer be able to make personal contributions. You should contact your super fund immediately if you haven’t already provided your TFN.
- New contribution limits – New limits apply for both concessional (pre-tax) contributions and non-concessional (after-tax) contributions to super.
Concessional contributions (which include employer SG and salary sacrifice contributions) will generally be limited to $50,000 per year. This limit will be indexed. The old age-based deductible contribution limits have been removed and anyone under age 65 (or anyone between the ages of 65 and 74 who meets the required work test) is now able to contribute up to $50,000 per year to super as a 'pre-tax' contribution. Contributions above this new limit will be taxed at the highest marginal tax rate.
A transitional period until 30 June 2012 will allow people aged 50 or older to have concessional contributions of up to $100,000 per year made to their super fund.
Non-concessional contributions will generally be limited to $150,000 per year, or $450,000 averaged over three years.
- Self-employed? - 100% of your super contributions may now be tax deductible up to age 74. In addition, you may be eligible for the Government Super Co-contribution, where you make personal contributions to super for which you don’t claim a tax deduction, you receive 10% of your income from carrying on a business, and you meet the other co-contribution criteria. For details see our Co-contribution web page.
- More flexible pension rules – Maximum withdrawal caps will no longer apply to most pensions. You will still have a specified minimum amount you need to withdraw from your pension on a yearly basis; however you can now withdraw larger amounts than previously, if you wish. For transition to retirement pensions, a maximum annual withdrawal limit of 10% of the account balance applies.
- More people will have access to the Age Pension – The rate at which the government paid Age Pension reduces under the assets test will be halved. For those currently receiving a part Age Pension this may mean an increase in pension payments. This also means some people will become eligible for the Age Pension for the first time. Those not currently eligible for the Age Pension should re-assess their eligibility from 20 September, as the level of assets at which the Age Pension cuts out will be increased.
The new Better Super rules are exciting as they will assist more Australians to make the most of their super.
Contact us
If you have any questions regarding Better Super or would like advice from a Mercer financial adviser, please call our Helpline on 1800 633 403.
More information
You may like to try the following resources for more information about Better Super:
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