Super strategies that still work

DESPITE some rule changes last month, superannuation remains the best place for boomers to place their retirement savings.

Piggy bank

Super strategies that still work

DESPITE some rule changes last month, superannuation remains the best place for boomers to place their retirement savings, Anthony Keane reports.

Pre-retirees have been blocked from using clever salary-sacrifice strategies to qualify for the $1500 government co-contribution.

Changes to the way salary-sacrificed income is assessed were announced in last month's Federal Budget, but the main benefits of superannuation and salary sacrifice remain, financial planners say.

From next year, salary-sacrificed super contributions will count towards income assessments for things such as family tax benefits and the super co-contribution.

"This means that employees will no longer be able to make salary sacrifice contributions to qualify or to increase their entitlement to the co-contribution," Financial Planning Association state chairwoman Kerrin Falconer says.

The maximum $1500 co-contribution is currently available to people earning below $29,980 who put $1000 of their own money into their super, and cuts out completely when income reaches $58,980.

Ms Falconer says the Budget changes do not mean salary sacrifice will no longer be worthwhile. "Salary sacrifice contributions are taxed at 15 per cent," she says.

"For employees on the top marginal tax rate of 46.5 per cent, including the Medicare levy salary sacrifice contributions, could potentially save 31.5 per cent in tax," she says.

Goldsborough Financial Services adviser Brenton Miegel says the opportunity to use super to build wealth has not changed.

"Taxation is one of the primary benefits of salary sacrifice - being able to invest funds in a very tax-effective investment environment," he says.

Once sitting in super, earnings on your investment are taxed at 15 per cent rather than your marginal tax rate which for most people is 30 per cent.

When people switch their super from the savings phase to an allocated pension after age 55, there is zero tax payable on earnings and capital gains. And once they reach 60 there is no tax payable on any withdrawals from their super.

"Everybody should continue to use superannuation as part of their retirement savings strategy. The long-term benefits remain in place," Mr Miegel says.

Other strategies such as transition to retirement, which allows people to draw income from an allocated pension while still working, are just as effective today as they were before the Budget.

"The transition to retirement strategy is going to become bigger and bigger over time as baby boomers recognise the need to accumulate wealth for their retirement," Mr Miegel says.

People also should look at whether they will benefit by switching non-super assets into super as they near retirement.

Ms Falconer says capital gains tax implications must be considered.

"However, with careful planning and implementation of certain strategies, and depending on a person's current work and financial position, capital gains tax may be minimised," she says.

Strategies
-  Salary sacrificing pre-tax earnings into super builds up your balance and reduces the tax you pay on your wage. 

- The co-contribution still applies to employees earning less than $58,980 a year, and people can still salary sacrifice to qualify for some or more cocontribution until the tougher rules come into force in July next year. 

- Tax-free super after age 60 still applies, with withdrawals from super or allocated pensions attracting no income tax, while income and capital gains earned within an allocated pension are not subject to tax. 

-Transition to retirement rules allow people to draw down on their superannuation through an allocated pension while at the same time topping up their super with tax-effective salary sacrifice payments. 

- A 15 per cent tax rate still applies to income generated by a super fund while the member is in the accumulation phase. Once they switch to pension phase - as mentioned above - it drops to zero.