Making the most of your superannuation

Key points:

• It is never too late to make changes that benefit your superannuation
• Some big changes have been made to superannuation laws, which allow you to put contributions into your super up until the age of 75
• If you are unsure about what to do, visit a financial advisor to get tailored, expert advice

There have been a range of changes to superannuation laws this year, which are providing older Australians with more benefits as they head towards retirement.

Aldis Purins, financial planner at WP Financial Planners, says these superannuation legislation updates are game changers for older Australians.

If you have missed the boat on making changes to your super that will benefit how much tax you pay, then this is a great time to start taking positive financial steps.

So how can you organise your finances and superannuation to better your situation in retirement? Here are some superannuation strategies to consider:

Non-concessional contributions

Under the new legislation the maximum age to make non-concessional contributions to your superannuation has been extended.

Non-concessional contributions are contributions you make to your super from your after-tax pay or your savings. Whereas, concessional contributions are made by your workplace, for example, salary sacrificing.

If you are making non-concessional contributions, this means you are using your day to day ‘pocket money’ to go into your super.

From 1 July 2022, you can put up to $110,000 into your super every year up until you turn 75. The cut-off age for this was 67 years so this change means there is more time to boost your super.

On top of that, you are allowed to bring forward three years of contributions, so instead of putting in $110,000 spread out over three years, you can place up to $330,000 into your super at once. This does mean you cannot contribute to your super in the second or third year.

Mr Purins explains that making non-concessional contributions to your super can help boost your retirement money and will not be taxed when put into your super fund.

Downsizing contributions

Another change that came into effect on 1 July is the option to make a contribution to your super after you sell your house.

This downsizer contribution is an option if you are aged 60 or older, and have owned your home for more than ten years.

So instead of placing the money from the sale of your home into your savings to be taxed, you can put up to $300,000 into your retirement super nest egg. If you’re part of a couple, both you and your partner can make downsizer contributions of up to $300,000 each.

Mr Purins says that this move is also a great option when swapping money around to avoid the ‘super death tax’.

“Often the people who have money in super have what [financial advisors] call a taxable component,” explains Mr Purins.

“What that means is, if one spouse dies this money goes to the other person tax-free, but when that last spouse dies, the money that would otherwise go to their children or via their estate, will often be subject to what is known as the super death tax which can be as high as 16 percent.”

He says one way to avoid that is to essentially ‘exchange’ your money in your super for the money from the sale of your home – swapping it – and that money will not be taxed upon your death.

“Your kids will thank you from the other side of the grave”, says Mr Purins, as your children will not need to pay 16 percent on what was left in your superannuation.

The downsizer contribution is expected to drop further in age from 60 to 55, giving more benefits to older Australians preparing for retirement. However, the legislation has not passed yet.

Splitting

Superannuation splitting is the process of moving large amounts of money from one person to their partner’s super, which will split their tax-deductible contributions.

Mr Purins says this is a great long-term plan, especially if there is a difference in ages between a couple.

For instance, if one person is close to the pension age, 67, and the other is five years younger at 62, it can make sense to “defund” the person who is close to the pension in favour of the younger person.

“The reason being, when the older spouse is finally ready for the Pension or even if they have qualified for the Pension, any money that is put into their spouse’s name, provided they are not Age Pension age, is exempt from assessment for Centrelink,” explains Mr Purins.

Mr Purins provides the example that for every $100,000 that is given to the spouse that is not near the pension age can “trigger” another $3,900 of Age Pension within a year.

Once the youngest spouse reaches the Age Pension age, all of their assets between the pair will be assessed together.

This can ensure that the oldest spouse, who has reached Age Pension age, can get the most benefit through Centrelink for a short-term period.

“Arranging your affairs properly for Centrelink benefits can make a considerable difference for older Australians,” says Mr Purins.

He adds that this is only beneficial if your assets are going to last until the younger spouse reaches Age Pension age.

Advice is always worthwhile

Mr Purin’s biggest piece of advice for people is to seek professional help when it comes to finances or your superannuation.

Just because something has worked for someone in the past or a fancy headline promises to fix all your problems, doesn’t mean it will work in your situation and usually can be terrible to use for personal advice, he says.

Getting tailored information from an expert can make a huge difference to your financial outcomes and set you up for a blissful retirement.

Have you given much thought to what you plan to do with your superannuation? Tell us in the comments below.

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Superannuation and planning your financial future
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How to continue funding your new life in retirement