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The primary purpose of superannuation is to provide benefits in retirement. The government has granted taxation benefits to encourage people to save for their retirement. At the same time restrictions have been placed on accessing these funds, as a means of ensuring money is preserved until your Preservation Age.
The Preservation Age applicable to you depends on you date of birth:
| If you were born: |
Your preservation age is: |
| Before 1 July 1960 |
55 |
| 1 July 1960 30 June 1961 |
56 |
| 1 July 1961 30 June 1962 |
57 |
| 1 July 1962 30 June 1963 |
58 |
| 1 July 1963 30 June 1964 |
59 |
| After 30 June 1964 |
60 |
Rules to "preserve" funds were first introduced in 1986, and then extended in 1994 and 1999. As a result there are different components within superannuation funds. The three main components are:
- The Preserved component which cannot be cashed until certain 'release conditions' or 'triggers' occur:
- Retirement from the workforce (once passed preservation age)
- Attainment of age 65
- Permanent incapacity
- Severe financial hardship.
A number of different rules apply to super contributions made before 1 July 1999. However, ALL contributions made after 1 July 1999, and the earnings of existing funds, must be preserved.
- The Restricted non-preserved component can be cashed in the same circumstances as the 'preserved' component above. In addition these funds can be accessed upon leaving an employer, if that employer has contributed to the fund for you.
- The Unrestricted non-preserved component can be accessed at any time and paid in cash, unless there are specific rules within the fund which do not allow payment.
Your annual benefit statement will indicate the breakdown of components in your fund.
In limited, prescribed circumstances, you may be able to access your super early under 'severe financial hardship' provisions or on 'compassionate grounds'. Find out more here.
On 1 July 2005, new legislation was introduced to help create flexibility in working and income arrangements and give people the opportunity to make a steady transition to retirement, rather than having to jump from full-time work to no work.
If you are over preservation age, you have the opportunity to continue to work and access some or all of your preserved super in the form of a non-commutable pension or annuity, in other words, one that cant be converted into a lump sum amount.
It is not compulsory for super funds to provide transition to retirement options to their members so check with your super fund to find out if this is available to you.
The Mercer Super Trust offers a Transition to Retirement Allocated Pension. To find out more and to download the Product Discloure Statement, visit our
Transition to retirement web page.
A qualified financial adviser can help you with your retirement planning needs and transitioning to retirement. To make an appointment with a qualified Mercer financial adviser, please call us on 1800 633 403.
To find out more about transition to retirement opportunities visit mercerwealthsolutions.com.au/transition
Some individuals who make a personal after-tax contribution of $1,000 to their super before 30 June could be eligible for a co-contribution of up to $1,000 from the Government.
Key points:
- The Government may match each dollar of personal after-tax contributions with a co-contribution of up to $1.00
- The maximum co-contribution amount paid by the Government is $1,000 per year
- Eligibility rules and limits apply
- You need to make a personal contribution before 30 June to be eligible.
To find our more about how the co-contribution works, visit mercerwealthsolutions.com.au/cocontribution
Super contributions splitting, which was introduced on 1 January 2006, allows eligible super fund members to transfer or rollover certain contributions to their spouse's super account. This may benefit people intending to retire before age 60, couples with significant age differences or couples wishing to rebalance their super accounts for general reasons.
There are conditions on what a member can split and when a member can split. The member and their spouse must satisfy eligibility criteria and their super fund must allow super contribution splitting.
To find out more about the rules and eligibility of super contributions splitting, please call us on 1800 633 403.
Some investors may be thinking about establishing a self managed super fund (SMSF). It is important to understand some of the pros and cons of this option and to get the facts before you jump in!
What is an SMSF?
An SMSF is a super fund with the following features:
- Less than five members
- Each individual member is also a trustee
- No member is an employee of another member, unless they are related
- The trustee does not receive any remuneration for his or her services as a trustee.
Pros
- Control over the management and investment of your super
- Subject to restrictions, allows investment in assets not usually available in public offer super funds such as real property, instalment warrants and listed securities
- Flexibility in payment of benefits, including estate planning
- May provide some tax benefits with imputation credits and capital gains. Further tax benefits may be available when the SMSF converts to pension payment phase.
Cons
- Costs for establishment and ongoing management can be considerable. Don't forget to take into account the value of your time and the cost of any specialist advice.
- Super is highly regulated - it must meet superannuation, tax and trust law. Breaches can incur severe penalties.
- You need to keep abreast of legislative requirements and changes to super rules and regulations
- As the trustee of the SMSF, you will be ultimately responsible under the law.
If you are thinking about setting up an SMSF, consider your options, look at what your current super fund offers and talk to a licenced or appropriately authorised financial adviser.
Mercer Wealth Solutions offers a comprehensive SMSF solution for individual clients.
Mercer can provide you with strategic financial and investment advice for your SMSF, both during the establishment phase as well as on an ongoing basis. We can also refer you to external specialists to meet your administration, accounting, legal and compliance needs.
Visit our web page on Self Managed Super Funds for more information, or call us on
1800 633 403 to make an appointment with a Mercer financial adviser to discuss a Self Managed Super Fund strategy.
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