Superannuation changes

Superannuation continues as a dynamic area with some key changes recently announced or legislated.

Superannuation Surcharge/Termination Payments Surcharge

The superannuation surcharge no longer applies to contributions and employer ETP’s (golden handshakes) made on or after 1 July 2005. This greatly increases the ability to tax-effectively use superannuation as a retirement planning vehicle for higher income earners.

Splitting of Superannuation Contributions

The recently released draft regulations on Super splitting provide for the splitting of superannuation contributions made after 1 January 2006, this is 6 months earlier than was previously announced. Key issues on the splitting of superannuation contributions are summarised below:

	It will allow single income couples to access two tax—free ETP thresholds and two reasonable benefit limits in relation to their superannuation benefits.
	An annual split model is proposed. After the end of each financial year, a superannuation fund member can request that up to 100% of personal undeducted contributions and 85% of deductible contributions made in the previous financial year be split with their spouse. This can be to their spouse’s account within the same fund or transferred to another fund.
	Only one request for splitting may be made in relation to a particular financial year.
	Rollovers and transfers from another fund and employer ETPs cannot be split with the member’s spouse as these may include amounts relating to a number of previous years.
	The receiving spouse must not be aged over 65. If the spouse is between age 55 and 64, they must not be permanently retired.
	Superannuation funds do not have to offer contribution splitting to members. Funds that do offer splitting can still reject a members request if there would not be sufficient funds available to meet a tax liability or fund expenses of the member.
	When a request is accepted by a fund it must be actioned within 90 days.

Super splitting is an opportunity that should be considered with your salary packaging options and retirement planning.

Superannuation Choice

From 1 July 2005, most Australian workers were eligible to choose the superannuation fund for their employer’s contributions. Choice allows employees to consolidate their superannuation savings and may give them greater control over investment selection. However, the decision to change funds should not be made without undertaking a cost/benefit analysis and considering the implications for any existing insurance cover within the current fund. For example, a medical condition of the employee, that developed after the insurance cover in the existing fund was established, may prevent access to insurance in the new fund.

Term Allocated Pensions (TAPs)

This type of pension, otherwise known as a market linked pension (MLP) was introduced in September 2004 and provides some unique retirement planning opportunities. Some of the features of this type of pension are outlined below:

	A TAP is a cross between an allocated pension and a complying pension and can only be accessed with superannuation monies.
	A TAP is generally measured against the higher pension reasonable benefit limit (RBL). The current pension RBL is $1,297,886.
	A TAP is payable for a fixed term as determined by relevant life expectancy tables. (From 1 January 2006 it is expected that the term of a TAP will be extended so payments can continue beyond life expectancy to age 100).
	A TAP can only be commuted in limited circumstances.

Accessing superannuation benefits prior to retirement

New rules from 1 July 2005 allow you to continue working and access preserved superannuation benefits at the same time, subject to certain conditions including:

The person must have reached their preservation age.
The benefits can only be taken as an income stream. You cannot access your preserved benefits as a lump sum at age 55 if you continue working part-time.
The income stream cannot be commuted and cashed out as a lump sum until you satisfy a further condition of release.

Superannuation contribution rules

From 1 July 2004, anyone below the age of 65 can make contributions to superannuation, irrespective of their work situation.

Anyone aged between 65 and 74 would need to meet certain work tests before contributions could be made to superannuation.

From age 75, you cannot make personal superannuation contributions and must start withdrawing your benefits, even if you continue to work.

These changes will bring benefits for many clients and we welcome the opportunity to discuss your personal circumstances.
 

Published : 22 November 2005