It’s a new financial year. Time to ponder your super and make some key decisions
This financial year has commenced in the sort of environment we have never experienced, so it’s a good time to review your super and ensure you are prepared to make the best of it.
Recent years have seen a swathe of super reforms fund members had to acquaint themselves with – but this year there are few new measures.
The work test
Until now, anyone wanting to make contributions to superannuation over the age of 65 had to comply with a work test. That meant showing you had done 40 hours of paid work over 30 consecutive days.
That has changed this year. Now, anyone up to the age of 67 can make super contributions without having to pass a work test.
“That can be a significant advantage for people who are 65 or 66 as it means they can boost their super if they have the resources available,” said Chris Morcom, a planner with Hewison Private Wealth.
“If you have savings you can make a concessional contribution of up to $25,000 for the year and reduce any income tax you might be liable for,” Mr Morcom said.
“It can be important if you have significant capital gains because you could reduce the tax liability by making a concessional contribution.”
There is also the prospect of non-concessional contributions of up to $300,000 when legislation now in Parliament is passed.
Mortgage or super?
But this might not be the wisest strategy, according to Robert Goudie, a financial planner with Consortium Private Wealth.
“Remember, your mortgage repayments are made after you have paid between 34 per cent and 49 per cent of your income in tax,” Mr Goudie said.
“If you make a concessional superannuation contribution you are only paying 15 cents in the dollar tax.
“That could give you an advantage of up to 19.5 per cent extra to invest at a compound rate of 6 to 7 per cent, so you will be tens of thousands ahead by the time you retire.”
Mr Goudie’s example applies to people earning between $37,000 and $90,000 who have a tax rate of 34.5 per cent where the difference between their tax rate and the super tax rate is 19.5 per cent.
That would also be advantageous for those on higher incomes.
It is what I would call an easy win.’’
– Robert Goudie
With mortgage rates below 3 per cent, the gap between the minimum mortgage requirement, the tax advantage, and the likely super returns means the strategy is particularly attractive, Mr Goudie said.
Minimum pension withdrawals
Once you retire and your super fund is in pension mode, the government requires you to withdraw minimum amounts in line with your age.
For this financial year, however, those minimums have been halved as a relief measure during the coronavirus pandemic.
You need to think about what level of pension you need to live on.
“Some funds are automatically halving pension withdrawals and some are keeping things the same,” said Daniel Donovan, a financial planner with Verse Wealth.
“You need to contact your fund to be sure you will be getting the payments you require – you don’t want to find you get a nasty shock when your July payment comes.”
Under the JobKeeper support measure, the government is paying $1500 a fortnight towards the wages of affected employees.
This can be more than some people would usually earn, but they are only paid the super guarantee on whatever they were earning before the pandemic.
Mr Morcom said that if you are in that situation and tempted to boost your super by making contributions on the extra bit, think twice.
“If you are receiving JobKeeper, it is because your employment is in some way precarious,” he said.
“It could be dangerous to lock in super while the situation is so fluid.
“It would be best to wait until later in the (financial) year and, if things are more stable, make a personal contribution in May or June.”
The same applies to people who have made withdrawals from super under the COVID-19 emergency measure during the financial year just ended. Although it would be possible to re-contribute it into super this year, that would not be wise.
“If you withdrew it legitimately, it was because your financial position was difficult. So, again, I would wait until later in the [financial] year to determine what was the best alternative,” Mr Morcom said.
Review asset allocation
The new financial year is a good time to check if your super asset allocation matches your needs.
That could mean moving to a more conservative portfolio as you age, or taking a more aggressive stance now, when markets are weaker.
But before you make any decisions on your super, it is wise to consult a qualified adviser.
“Just because you retire doesn’t mean you should move from a balanced portfolio to a conservative one,” Mr Goudie said.
“Remember, you or your partner might live until 95, so you still need exposure to growth.”
The New Daily is owned by Industry Super Holdings