The Bull

Monday 22

January, 2018 1:43 AM



Super & Retirement question

Commencing a transition to retirement strategy while still adding to super

Commencing a transition to retirement strategy while still adding to super Jeremy Gillman-Wells

I am 60 and have commenced a transition to retirement pension. I am taking the minimum amount 2%. As I am still working I am in a position to put some of my savings back into my super fund. Am I correct in assuming that I can do this providing I do not exceed $450,000 over a three year period? Yours sincerely....William

You are close enough spot on! Budget night 2009 changed a couple of the details for the future, but for this financial year you are correct. The table below shows the contribution limits for this financial year:

Superannuation contribution caps (2009/10 financial year)

 Contribution type  Annual cap Tax on entry Tax on excess
 Concessional Under age 50 $25,000 15% 31.5%
 Concessional Age 50 or over $50,000* 15% 31.5%
 Non-Concessional N/A $150,000# Nil 46.5%

* Available in each financial year up to and including the year ending 30 June 2012 where you are 50 or over at the end of the financial year.

If you are aged less than 65 at any stage during the financial year in which the contribution is made, then you can bring forward future entitlements to an amount equal to 3 times the non-concessional cap. That is: $450,000 over 3 years for the 2009/10 financial year. However, if contributions are made after turning age 65, you must actually have satisfied the work test in the year contributions are made and the amount is limited to only $150,000 pa. To satisfy the work test you need to have worked 40 hours in 30 consecutive days during that financial year.
 
Now I'd hasten to add that if you are drawing the absolute minimum 2% pension, and you have enough money left over to add back to your superannuation, you need to look at a couple of things. Have you actually got the best strategy here?
 
1.    Are you maximising the $50,000 pa contributions (pre-tax) to super and ensuring that at the same time your personal taxable income does not dip below $30,000?
 
Firstly, if you have spare funds left over, perhaps you are not salary sacrificing hard enough.
 
Secondly, at $30,000 taxable income you have optimised your personal tax situation. There is no point salary sacrificing below this level as things like low income earners rebate take you to a personal tax position that is lower than 15%. There is no point in paying 15% tax on super contributions if you would actually pay less tax by NOT paying it into super. So just make sure that your taxable income is not less than $30,000 pa due to salary sacrifice.

Perhaps some examples might help:
 
a. Salary = $100,000, total to super from employer including salary sacrifice = $50,000, taxable income = $59,000. Fine.
 
b. Salary = $60,000, total to super from employer including salary sacrifice = $50,000, taxable income = $15,400. Bad as too much tax paid overall and bad estate planning.
 
c. Salary = $60,000, total to super from employer including salary sacrifice = $35,400, taxable income = $30,000. Fine.
 
2.    Perhaps you are drawing too much allocated pension from your TtR income stream and that's why you have excess income? This would happen if you are drawing more than the minimum 2% and up to 10% of the balance. If you don't need the extra income, why are you drawing it?

In most cases it is better to leave the excess money in the tax free environment of the income stream, rather than pulling it out tax free and putting it back into super where earnings will be taxed at 15%. Unless you are trying to turn taxable component into tax free component, then you should review your draw down strategy so that there is no excess above your living/spending needs.
 
3.    If you can maximise your super contributions to $50,000 and still afford to live with what's left of your salary, then perhaps you don't need the TtR pension income stream at all. There is no point drawing on retirement assets unless you need the income to live. You are better off just boosting super and not drawing on it.
 
The caveat to this would be if you had a very high balance in allocated pension (say over $1M) and the zero tax on earnings in the TtR income stream phase outweighed the effort of the recycling strategy you are contemplating and the potential 15% tax on earnings in super. That is, you have swapped to an income stream to minimise tax on earnings in the super phase.

So assuming you've considered the alternatives and you are optimising your strategy, yep - you can tip the excess back into super of up to $450,000 worth. 

By Jeremy Gillman-Wells, Financial Planner, Bentham Financial Group 

Jeremy Gillman-Wells is an Authorised Representatives of AMP Financial Planning Pty Limited   | ABN 89 051 208 327 | AFS Licence No 232706. In order to get the latest newsletter, click here.

 

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