Latest Changes in Superannuation a DIY Perspective

1. 1 Latest Changes in Superannuation � a DIY Perspective Presented by - BLM Accounting Services 6th February 2006

2. 2 Contents Record Keeping Contribution Splitting Transition to Retirement New Pension Factors

3. 3 Record Keeping Following must be kept for 10 years Minutes Changes of trustees Consents of directors Consents of individual trustees s71E elections

4. 4 Record Keeping Following records must be kept for 5 years Financial statements Tax returns Accounting records Documents supporting above

5. 5 Record Keeping What decisions need to be minuted? Contributions Benefit payments Investment decisions If in accordance with investment strategy an annual summary If not in accordance with strategy (remember to update strategy)

6. 6 Contribution Splitting Overview Splitting allows eligible persons to transfer superannuation contributions to their spouse

7. 7 Who can split contributions? Between spouses (in the �traditional� sense) Married De facto Same sex couples excluded

8. 8 Spouse must be below preservation age or less than 65 and not permanently retired At discretion of superannuation fund (previously to be mandatory), will need to make sure trust deed allows splitting

9. 9 Preservation Ages

10. 10 What contributions can be split? 100% of undeducted contributions 85% of deductible contributions

11. 11 When can contributions be split? A splitting application can be made for contributions made to a fund after 1 January 2006 Application can be made after 1 July each year for all contributions in previous year Can only make one application per year

12. 12 If you want to claim a self-employed deduction (s82AAT) you must give the notice to claim the deduction before the splitting application You must make the application to split before rolling the contributions to another fund or commencing a pension

13. 13 Advantages of splitting Gives access to two RBL�s and two low rate Post June 83 thresholds Note thresholds 2005 $123,808 2006 $129,751 Equalise superannuation balances so both spouses have the same taxable income in retirement

14. 14 Example 1 If you have maxed out your RBL you now may be able to start salary sacrificing again

15. 15 Bob, retired from the public service but now working as a consultant Has previously maxed out his RBL His wife has no accumulated super Needs $45,240 per year for living expenses

16. 16 No salary sacrifice contributions CSS Pension $ 60,000 Consulting income $ 80,000 Total $140,000 Tax on taxable income $ 50,610 Net income after tax $ 89,390 Undeducted contribution $ 44,150 Contributions tax Net super after tax $ 44,150 Total tax $ 50,610 Net income after tax & super $ 45,240

17. 17 Salary sacrifice maximum Now Previous CSS Pension $60,000 $ 60,000 Consulting income $Nil $ 80,000 Total $60,000 $140,000 Tax on taxable income $14,760 $50,610 Net income after tax $45,240 $89,390 Super contribution $80,000 $44,150 Contributions tax $12,000 $Nil Net super after tax $68,000 $44,150 Total tax $26,760 $50,610 Tax saved $23,850 Additional super $23,850

18. 18 Example 2 Equalise taxable incomes in retirement

19. 19 Leanne salary sacrificing $60,000 per year Currently has $300,000 in accumulated superannuation Husband Dave has no super Will retire in 5 years at age 60 Assume fund earns 8%

20. 20 No splitting Accumulated super Leanne $751,963 Accumulated super Dave $Nil Minimum pension Leanne $38,962 Tax on taxable income $8,133 Pension offset $5,844 Tax payable $2,289 Net income after tax $36,673 Joint net income $36,673

21. 21 Split 100% Accumulated super Leanne $440,798 Accumulated super Dave $311,165 Minimum pension Leanne $22,839 Tax on taxable income $3,054 Pension offset $3,054 Tax payable $Nil Net income after tax $22,839 Minimum pension Rod $16,123 Tax on taxable income $1,760 Pension offset $1,760 Tax payable $Nil Net income after tax $16,123 Joint net income $38,962 Increase in income $2,289

22. 22 Transition to Retirement Overview Transition to retirement allows eligible persons to access their superannuation in the form of a pension while still working

23. 23 Who can commence a transition to retirement pension? People that have reached preservation age (refer preservation age table at slide 9) The superannuation fund trust deed must permit payment of transition to retirement pensions

24. 24 What type of pension can be commenced? Superannuation can be accessed in the form of a non-commutable pension Commutable means able to be converted to a lump sum

25. 25 Uses existing pension types Allocated pensions Market-linked income streams Adds extra conditions in the case of an allocated pension � a market linked pension can generally not be commuted anyway

26. 26 Can only access a lump sum according to normal superannuation preservation rules Unrestricted unpreserved monies Satisfying a conditions of release Permanently retiring Reaching age 65

27. 27 When can a transition to retirement pension be commenced? From 1 July 2005

28. 28 Why commence a transition to retirement pension? Replacing working income with pension income can be tax effective

29. 29 Example Don earning $70,000 per year in wages Age 55 $500,000 in accumulated super Assume fund earns 8%

30. 30 No Pension Wages $70,000 Tax on taxable income $17,910 Net income after tax $52,090 Super balance at year end $540,000 Super balance after 5 years $734,664

31. 31 Transition to retirement pension Wages $42,695 Minimum allocated pension $23,697 Taxable income $66,392 Tax on taxable income $17,856 Pension offset $3,555 Tax payable $14,302 Net income after tax $52,090 Salary sacrifice $27,305 Contributions tax $4,096 Net contribution $23,209 Super balance at year end $549,954 Increase in super $9,954 Super balance after 5 years $798,653 Increase in super $63,989

32. 32 The after tax value of the contribution replaces the pension payment. The benefit in this example comes from the accumulated superannuation moving into pension phase When a fund is in pension phase the tax rate drops from 15% to 0%

33. 33 New pension factors Changes made to the available terms and payment limits for market linked income streams New minimums and maximums for allocated pensions

34. 34 Market-linked income streams Term of the pension The allowable term of a market linked income stream can now be based on either your life expectancy if you were to live to 100 or any term in between or in the case of reversionary pensions your spouses life expectancy if they were to live to 100 or any term in between.

35. 35 Market-linked income streams Previously the term was restricted to your life expectancy or any term plus five years or in the case of reversionary pensions your spouses life expectancy or any term plus five years.

36. 36 Market-linked income streams Payment amount Previously payment was fixed and was calculated by dividing the account balance by the relevant factor given the number of years remaining in the pension term Now can adjust the calculated figure up or down by 10%

37. 37 Allocated pensions New allocated pension factors (see attached table) will apply to new pensions commenced after 1 January 2006 Pensions commenced before 1 January 2006 will continue to use the old factors The new factors decrease both the minimum and maximum payments by approximately 5%

38. 38 Allocated pensions Transitional period Pensions commenced between 1 January 2006 and 30 June 2006 can elect to use either the old or new factors

39. 39 Allocated pensions If you already have an allocated pension but want to access the new factors you can commute the pension and start again The undeducted purchase price will be recalculated if you do this

40. 40 Example Bill commenced an allocated pension at age 55 on 1 July 2000 with $500,000 Undeducted contributions of $100,000 On 1 July 2006 Bill decides to commute the allocated pension to take use of the new factors Bill�s current account balance is $550,000

41. 41 Old Pension Minimum pension $31,609 Deductible amount $4,129 Taxable income $27,480 Tax on taxable income $4,516 Pension offset $4,122 Tax payable $394 Net income after tax $31,215

42. 42 New Pension Minimum pension $29,101 Deductible amount $3,610 Taxable income $25,491 Tax on taxable income $3,890 Pension offset $3,824 Tax payable $66 Net income after tax $29,035

43. 43 Projected Balances