Super fund members could be overpaying on tax: Super Members Council
Hundreds of thousands of retirees over 65 could be overpaying taxes by $650 each year on average as the system fails to alert them, the Super Members Council has revealed.
Some 700,000 retirees over 65 could be paying more tax than they should by not switching their super funds into retirement mode, the Super Members Council (SMC) has warned.
The Council said new research showed there was around 700,000 Australians over 65 who were not working full time who still had super funds in accumulation accounts.
Earnings from super funds in the retirement phase, earned on funds below $1.9m, are not taxed, while the earnings on funds in accumulation mode are taxed at 15 per cent.
Releasing the research, Super Members Council chief executive Misha Schubert said retirees affected could be paying an extra $650 in taxes each year on average.
Research done by the Council estimates people over 65 affected currently have super funds worth a total of $90bn in their accumulation accounts.
“If someone keeps $100,000 in an accumulation account instead of moving it to a pension account, they could pay an up to extra $4500 in super taxes over their retirement,” Ms Schubert said.
“For $200,000 balances, the extra tax could be $9000.”
Ms Schubert said some of the inactive accounts belonged to people over 65 who were still working or who were keeping their accumulation account as a “back-up”.
But, she said research showed many people didn’t act to move their super fund from accumulation to retirement mode because they were disengaged or didn’t know what to do.
“A consumer survey of retirees found about six in 10 Australians with lower balances (less than $100,000) who have an inactive account keep it because they haven’t decided what to do with super yet or don’t know what to do with their account,” she said.
She said new legislation proposed by the federal government to allow super funds to provide basic advice to members would be important in helping retirees get quality information about their super at low cost.
“Not knowing enough about super can lead to poor decisions, like leaving accounts inactive or
withdrawing funds without proper planning,” she said.
“Making simple information and advice available to more Australians is a big missing piece of the retirement puzzle.”
She said financial advice reforms proposed by the federal government would help make simple advice more affordable.
But, the legislation has yet to be introduced to parliament.
“The package of reforms will enable the 2.5 million Australians on the runway to retirement to get the high-quality information they need to plan wisely at a much lower cost,” she said.
“We urge the government to introduce legislation swiftly.”
The Council’s research shows most people with super fund balances of $100,000 or less were leaving them in the accumulation phase because they don't know what to do with their super or don't know how to move it into pension mode.
“This is the group that would most benefit from super funds being able to offer simple and affordable advice relating to their retirement income,” Ms Schubert said.
She said these people would most likely not seek detailed financial advice because it was too expensive.
The research shows only 17 per cent of Australians, including 26 per cent of current retirees, said they had sought financial advice from their super fund.
“Research shows that four in five Australians aged 45 to 54 need financial advice but cannot
afford it,” she said.
The proposed new legislation would allow super funds to “better guide members at key life stages with personalised prompts to support them for retirement, she added.
“It would also create a new type of adviser who can give simple but quality advice on APRA-regulated products.”
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Originally published as Super fund members could be overpaying on tax: Super Members Council
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