Delaying access to your superannuation until after July 1, 2007, may be a costly exercise for retirees not requiring access to a lump sum, according to Ward Financial Group principal Barry Ward.
Following the Federal Budget changes, superannuation is a tax free benefit for those 60 and over but, according to Ward, the tax penalties to retain the funds in the accumulation phase may be greater than the tax payable from pension income.
“Certainly, if a retiree has a requirement to withdraw a large lump sum from their superannuation, delaying withdrawal makes sense. But the majority of retirees will use their superannuation to fund retirement income,” Ward said.
“With the capacity next financial year to receive a superannuation pension income of around $31,000 tax free, paying the 15 per cent earnings tax to retain the fund in the accumulation phase would be detrimental.
According to Challenger Financial Group technical services manager Alex Denham: “Anyone drawing less than $31,000 assessable from their allocated pension next financial year — using the new tax rates — is not paying tax on that income due to the 15 per cent rebate.
“With no tax on income, and no tax on investment earnings, that is a better position than leaving the money in the accumulation phase for the next year in which the earnings are taxed at 15 per cent.”
Ward said that, despite many opinions to the contrary, spouse splitting and the transition to retirement strategy would remain viable in the new regime.
Tribeca technical manager Jenny Rolfe agreed, saying “spouse splitting and transition to retirement are still very beneficial for the right people in the right circumstances”.
She added: “It’s a bit like everyone incorrectly stating that the introduction of spouse splitting allowed couples to take advantage of double RBLs [reasonable benefits limits] — that had always been available, it’s just that spouse splitting enabled it to be done more effectively.”
It is still unclear how existing super arrangements will be impacted by the recent Budget changes, and the industry is awaiting further clarification.
In particular, the financial services sector is likely to lobby against the Government’s introduction of a cap on undeducted contributions, which is to apply retrospectively on May 9, 2006.
