Question 1

• Is there anything my wife and I need to consider (e.g. transitioning to retirement, sale of investments, minimising capital gains if and when we sell) before we turn 60 later this year based on our situation. We are both currently working and hope to do so for a couple more years, own our home, have two investment properties combined worth $800k with a loan of $250k on one of the properties. Our combined super is $900k. Thanks in advance.

Once you turn 60 you would have met your preservation age and can start to access your super, should your wish, via a transition to retirement pension. A maximum 10 per cent of your account balance can be accessed via this method.

Once you attain age 65, or permanently retire, you can then access all of your super.

The other things about turning 60 is that when you access your super, it is all paid tax free, whether via a lump sum or income stream.

With your investments it’s important to plan ahead, and possibly stagger their sale to minimise CGT.

Selling an asset with a large capital gain attached may be best done when you have a lower taxable income, i.e. you have gone part time or retired from the workforce. This is because capital gains get added to your taxable income for that financial year.

Additionally, if you have investments with a capital loss they can be sold at the same time with investments with a capital gain as the loss can offset the gain to reduce overall CGT.

If you are sitting on large unrealised capital gains you can also look to make personal tax-deductible contributions to super to reduce the tax payable and boost your super at the same time. Just remember to stay within your concessional cap.

If either of you have a super balance below $500,000 then you can also take advantage of the carry-forward provisions that allow you to make larger concessional contributions.

Also remember tax is just one consideration. If you can sell your investment for a great price you need to consider this as well.

It seems you are in a solid position and as I stated earlier now it’s important to put a plan in place.

Once you have a big picture plan in place, with things like, when to retire, how much do you want each year in income etc, you can then start to work out when to sell investments, pay down debt and how much your super balance will need to be.

I suggest seeking personalised financial advice to assist with this.

Question 2

• If you are over the age of 65 and therefore in the pension phase, and your super balance is getting close to $3 million, can a person just freely make withdrawals to keep the balance below $3 million to avoid the newly legislated tax regime?

The new proposed tax on earnings over $3 million is not yet legislated. If it is legislated it is due to commence from July 1, 2025.

Therefore, we can’t definitively say how the tax will work but it’s proposed to tax all earnings on balances over $3 million by 15 per cent.

For example, if you had a balance of $4 million and your balance grew by $1 million over the year, then the proportion of earnings to be taxed is 40 per cent ($5 million less $3 million/$5 million).

$1,000,000 x 40 per cent x 15 per cent (tax rate) = $60,000

Coming to your question – yes, you can withdraw funds from super once you turn 65. However, if you already have $3 million or more at the start of a financial year, you cannot redraw funds just prior to the end of a financial year to avoid this tax as any withdrawals are added back to the starting balance for this very reason.

It’s also worth noting that any contributions are also subtracted so they don’t get counted as earnings.

We will have to wait on final legislation to see if there are any changes to this.

For many people it may still be an appropriate option to leave funds within the super system.

Ffor others they may to invest elsewhere, but advice will be crucial.

Question 3

1. Hi Craig, I have an elderly neighbour who is 81. He recently tried to get a lump sum from his pension account, to pay some unexpected bills. He was told his super is a TAP account and can only get the annual maximum amount set by government. Really? Surely he can get access to his own money. Thanks. 

A Term Allocated Pension (TAP) was a product that was available between 2004 and 2007. It was a cross between an account-based pension and a lifetime annuity.

The main advantage of a TAP is that only 50 per cent of the account balance is counted under the Centrelink asset test. And like an account-based pension, payments are tax free.

However, the main disadvantage is that you cannot make withdrawals and are locked into a maximum drawdown amount set by predetermined formulas. This was the trade off to getting the 50 per cent Centrelink exemption.

Because these products were on the complex side they were generally sold via financial advisers.

The financial adviser should have explained this limitation clearly and only recommended a portion of your neighbour’s funds into one – leaving your neighbour with most funds still available to cover large and/or unexpected bills.

Unfortunately, this was not always the case. I recall a large financial institution having an internal ‘promotion’ on selling these products. This led them to be sold inappropriately in some circumstances. And in these cases, your neighbour can make a complaint and seek restitution.

As the TAP term would have been set when purchased, at least 16 years ago, it would be interesting to know how much longer the term is. You can speak to your current product provider about this, and they should be able to indicate how long is left and next year’s likely payment.

The only other option would be to roll over the TAP to a new product provider to reset the term, which may allow you to reset formulas and take a larger payment.

However, there may be limitations around this as well so you would need to seek financial advice.

The other issue is that not many product providers now accept TAP rollovers. The one that will that I know of is Netwealth.

Craig Sankey is a licensed financial adviser and head of Technical Services & Advice Enablement at Industry Fund Services

Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.

Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives.

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