SG lost due to salary sacrificing, is super tax-effective?, SMSF pensions, accessing super at 60, and lots more
Welcome to the MAY 2011 edition of SuperGuide newsletter, a free and independent source of superannuation information for consumers.
Before I share the highlights of this month’s edition, I would like to thank you, our subscribers, and our other regular readers and also our casual visitors, for your support over the past two and half years. We now have more than 60,000 visits to our website each month, and the number of visitors subscribing to our newsletter is growing every day.
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The highlights of the May 2011 SuperGuide newsletter are:
- THAT’S NOT FAIR! (No 1): SALARY SACRIFICE CAN CAUSE SG PAY CUT. An employee can lose Superannuation Guarantee entitlements when boosting super contributions via a salary sacrifice arrangement. That’s not fair! SuperGuide promised to keep a scorecard of what Minister Shorten achieves, and what he doesn’t achieve in the superannuation space. Over the next 12 months, we will be publishing a series of articles under the theme of ‘That’s not fair!’ highlighting some of the policies that seem to have been ignored, or forgotten by the Government. This article is the first in the series of articles targeting inequities in the super laws. Click on the link below to find out more.
- CONTRIBUTIONS CAPS: THE SUPER INDUSTRY’S VIEW (A CLARIFICATION). How many Australians are affected by the halving of the concessional contributions caps? In the April 2011 SuperGuide newsletter, I mentioned that Australia’s leading superannuation industry body, ASFA, had stated that the halving of the contributions caps would only affect 4% of Australians who salary sacrifice. I claimed that ASFA had misled the Australian public with this statistic, and ASFA took exception to my claim. We publish ASFA’s response. Click on the link below to find out more.
- IS SUPER TAX EFFECTIVE FOR THOSE EARNING LESS THAN $37,000? If you earn less than $37,000 in a year (for the 2010/11 year), you have no real income tax advantages when investing via a superannuation fund, unless you’re eligible to take advantage of the government’s co-contribution scheme. Not all of our SuperGuide readers agreed with me. Click on the link below to find out more.
- SUPER FUNDS DELIVER 5.8% FOR 12 MONTHS TO APRIL 2011. The median superannuation growth fund delivered 5.8% for the 12 months to 30 April 2011, although the median superannuation growth fund has delivered a more impressive 10.2% for the financial year to date (July 2010 to April 2011), according to rating company Chant West. Click on the link below to find out more.
- I’M 60. WHY CAN’T I ACCESS MY SUPER BENEFITS. A commonly held view in the community is that as soon as you reach the age of 60 you can cash out your super and enjoy a tax-free retirement. Not so fast! You still have to satisfy certain conditions before you can access your super benefits. Click on the link below to find out more.
- FUND CHOICE: WHY WON’T MY EMPLOYER CONTRIBUTE TO MY SMSF? Click on the link below to find out the answer
- DEFINED BENEFIT FUND MEMBERS: ARE WE SUBJECT TO THE CONTRIBUTIONS CAPS. The answer? Yes and no. Click on the link below to find out more.
In this month’s newsletter, we also have Q&As covering whether there is a limit to how much SG (in dollars) an employer must pay, how to calculate your minimum pension payment, what happens to your SMSF pension if you return to work, what types of pensions are available to super savers, how co-contributions work and accessing super early due to hardship.
Note: You can click on the links below or you can access the newsletter link directly via the SuperGuide website. Click here if you want to access the MAY 2011 newsletter page via the website.
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That’s not fair! (No. 1): Salary sacrifice can cause SG pay cut
Before the current Government was elected in 2007, they promised to change the rules to ensure that individuals who choose to salary sacrifice do not lose Superannuation Guarantee entitlements. Nothing was done, and it appears that neither party is interested in correcting this injustice since the 2010 Federal election, or since the 2011 Federal Budget.
In the April 2011 SuperGuide newsletter, in the article 2011 Federal Budget: What about super’s 4 forgotten issues?, I mentioned that Australia’s leading superannuation industry body, ASFA, had stated that the halving of the contributions caps would only affect 4% of Australians who salary sacrifice. I claimed that ASFA had misled the Australian public with that statistic, and ASFA took exception to my claim.
The median superannuation growth fund delivered 5.8% for the 12 months to 30 April 2011, although the median growth fund has delivered a more impressive 10.2% for the financial year to date (July 2010 to April 2011), according to rating company Chant West.
Q: I am not sure I agree with your comment “… if you earn less than $37,000 in a year (for the 2010/11 year), you have no real income tax advantages when investing via a superannuation fund.” The tax payable on $37,000 (incl Medicare and low income offset) is $4,735. Costs of running a super fund could be contained under $1,000 and if there are two members, this can be construed to be under $500 each. I accept that if direct shares and/or managed funds are involved there would be extra costs, but they should not amount to $4,000. Am I missing something?
HOW SUPER WORKS
Q: My husband turned 60 years of age in October 2010, and he has $80,000 in his super fund. We would like to withdraw his entire super as we need the funds to purchase a house. Due to his age we need a deposit of $100,000 before the bank will lend us the money for the house. He is currently employed full time and will be working for many years yet.
Q: I am earning a salary of $271,000 including super. I am aged 42 and I understand a maximum contribution level applies based on a 9% SG contribution, before the balance up to a $50K limit must be made on a salary sacrifice basis. Can you please confirm what the maximum SG contribution is allowed to be, based on $271,000?
Q: My question is about a member’s notional superannuation account’s yearly value amounts. Are these “Notional amounts” that the (long time) employee will receive, but not yet physically accrued in their superannuation account, are they then included in the individual’s concessional cap? If they are…. how does the taxpayer know what his/her yearly “Notional” amount is?
Q: I am about to start a new position. I am 67 years old and I have a SMSF. My new employer has said I must join the super fund they use and that I cannot use my SMSF as they have too many employees to accommodate my choice. It was my understanding I could have my employer’s Superannuation Guarantee paid to super fund of my choice. Would you kindly let me know if this company can insist I join the super fund they use?
Q: I run our SMSF. I am 51 and I wish to retire at 55. I am a little confused about the 4% minimum rule for pensions. Do I have to withdraw 4% of my total accumulation SMSF fund, or do I move some of the assets into a pension fund and then draw 4% a year?
Q: My husband turned 55 in January. We have a SMSF and he is going to commence pension phase. He is essentially retired and only worked 4 hours this financial year. But what if he decides to work again in six months’ time? The account-based pension allows for lump sum withdrawals which is very advantageous and would be our first choice as it gives more flexibility. My question is which pension do we set up when he doesn’t know whether he will work again? What happens if you are drawing down an account-based pension and then you work?
Q: I’m 24. I am currently paying off my house but I have a loan which a debt company bought off the bank. They sent me a letter of demand saying I have until the end of the month to pay the amount or they are going to take my house. Is there any way I can take out my super to pay that so I don’t lose my family home.
Q: Does a co-contribution received after using up the total bring forward cap of $450,000 mean that an excess contribution has been made, or is the Government co-contribution excluded from the after-tax contribution cap?
Q: I am aware that the minimum amount of pension withdrawal is normally 4% (for under 65s) of the pension account balance (currently 3% for 2011/12). Is there now any MAXIMUM amount of pension required to be drawn from a super fund? If not, is this still the case for account based pensions, transition to retirement pensions, allocated pensions and lifetime annuity pensions. The various terms for pension types are confusing.