T10 Superannuation & Retirement Planning
John, aged 42, is self-employed and is likely to earn a taxable profit of $100,000 from his business. He has been advised by his accountant to make additional contributions to his superannuation fund prior to year-end (30 June 2016). John has already contributed $20,000 and decided to contribute a further $35,000. (a) Discuss the implication of John's actions from a taxation point of view. (b) Discuss the implications to John of contributing an additional $3,000 on behalf of his spouse who has an assessable income [incl. total reportable fringe benefits amounts and reportable employer super contributions (RESCs)] of $11,000.
a) Contributions above $30,000 would be treated as excess concessional contributions & are not advisable from a taxation point of view. b) spouse super contributions tax offset: 18% of contributions up to a maximum of $540. He can claim a tax offset of $504 which is a benefit, especially if he is in a high tax bracket.
Liam and Lucy have decided to retire. At this stage, they are both 62 years of age. Liam's accumulated balance in the fund is $320,000 (including non-concessional contributions of $50,000) and Lucy's is $240,000 (including non-concessional contributions of $30,000). Required: (a) What income stream products are available to Liam and Lucy? What issues need to be considered in determining which particular income stream product is suitable? (b) Explain their rights to withdraw some capital at any stage from the income stream products.
a) there are a number of income stream products available depending on the couple's income needs, income from other sources, whether they need lump sum withdrawal at future dates and their health. Need to look into the characteristic of each of the income stream products to determine the suitability for their situation: - account-based or allocated income streams - lifetime income streams - fixed income streams Issues that need to be considered: -certainty of income stream -access to capital - flexibility in income streams - investment security - payment of death benefits b) withdrawal of capital ~ Term certain pensions / annuities: some or all of the capital can be returned at end of contract. Generally, no access to capital during contract; ~ Lifetime pensions / annuities: generally, no access to capital during contract; ~ account-based pensions / annuities: access to capital can be made at any time ~ market-linked income streams: generally, no access to capital
Josie is aged 57 and has rolled over her superannuation funds into an account-based pension. Josie's superannuation fund balance amounts to $400,000. Required: (a) Determine the minimum income payments that Josie is able to withdraw in 2015/16. (b) Discuss the factors that Josie should consider in determining the types of asset classes that she may wish to invest her account-based pension in.
a) under 65, so minimum pension is $400,000 x 4% = $16,000 b) Josie will have a range of asset classes to invest in, ranging from conservative asset classes (cash, bonds and other fixed interest securities) through to the more aggressive assets (shares and property). The asset classes chosen by Josie should be considered after taking the following into account: - risk profile - age - need for diversification - other investments - need for income v growth - health
Joan is 19 years old and earned $35,000 p.a. During the income year ending 30 June 2016 she made $1,000 personal super contribution. (i) How much super co-contribution would she be entitled to? (ii) How much super co-contribution would she receive if her personal super contribution was $600? (iii) How much super co-contribution would she receive if her personal super contribution was $1,200? (iv) If Joan earned $39,000 what would be her maximum super co-contribution entitlement?
i) $500 ii) $300 iii) $500 iv) $381.92
Brown and Associates Pty Ltd made a superannuation contribution of $35,000 for each of its two directors/employees of the company for the year ending June 2016. As at 30 June 2015, Mr Brown is aged 54 and Mrs Brown 46. What is the tax deduction that Brown and Associates will be able to claim for the superannuation contributions?
~Company: can claim tax deduction for the full $70,000. ~Mr Brown: aged > 49 = no excess concessional contributions as he is within the cap. ~Mrs Brown: aged < 48 = excess concessional contributions of $5000 above the cap. Included in taxable income.
Sue is a self-employed hairdresser. She expects to earn $70,000 p.a. and wants to maximise her contributions to superannuation. She is aged 35 years. What is the maximum that Sue can claim?
$30,000. Contributions above this amount will be included as taxable income and taxed at marginal tax rates.
Your employer is offering you the option of transferring your funds from the defined benefit superannuation fund to an accumulation superannuation fund. (a) Explain the difference between a defined benefit fund and an accumulation fund. (b) What factors would influence your choice to switch funds?
*Defined benefits scheme* -operated by large employers and public sector funds -benefits determined by the amount of the members salary at a particular date, being the date of the members termination of employment or retirement or an earlier date, or the members salary averaged over a period before retirement multiplied by a specified amount. eg: - 5 times salary at date of death - 15% of final average salary for each year of service with the company. After 30 years service, 15% x 30 years x final average salary
1. What is the earliest age that you can generally get access to your preserved superannuation funds? 2. What are the special circumstances whereby a person is able to access his or her superannuation funds prior to preservation age?
1. When a member attains preservation age & is retired. 2. Preserved benefits can be accessed prior to the member reaching preservation age if the member ~dies ~is permanently incapacitated ~suffers severe hardship ~qualifies on compassionate grounds ~receives a non-commutable income stream during a period.
Helen, aged 63, won first division in Tattslotto of $1 million in September 2015 and decided to retire from her self-employed work in that month. For the financial year ended 30 June 2016, would Helen be able to contribute towards a superannuation fund and would she be eligible to claim a tax deduction for the contribution?
A complying fund would be able to accept her contributions because she is under 65 (the work test does not apply) As she is over 49 and self employed, she could make concessional contributions & claim a tax deduction of up to $35,000. Contributing more would be pointless as the excess contributions would be included as taxable income & taxed at marginal rates. As she is under 65, she could contribute up to $540,000 as a 'bring forward' non-concessional contribution, but can't make a tax deduction on this.
Janet has been working for the past 15 years and has accumulated balances in 4 superannuation funds totalling all up $220,000. All funds are invested in conservative asset classes earning relatively low returns. Janet is now 52 and is looking at retiring at age 60. Her plans at age 60 are to withdraw all funds, and purchase an expensive new car, go on an extended overseas holiday and then apply for the old age pension. Her other assets consist of $20,000 held in a cash management trust and $50,000 held in debentures. Janet has a well paying job but also has been living an expensive lifestyle. What would your advice be to Janet in respect of her superannuation and plans for the future?
Issues: ~could Janet life off the Age Pension considering her expensive lifestyle? ~some tax may need to be paid when funds are withdrawn prior to age 60 but not after age 60 ~Janet is likely to be incurring unnecessary admin fees by maintaining 4 super funds. Funds could be 'rolled over' into one fund to minimise costs. ~Janet still has 8 years until retirement and therefore would be advised to invest into more high growth asset classes (perhaps 60% in growth assets) that produce higher returns in order to maximise SF balance. ~Janet would be advised to transfer some of her curtrent investments (where she would be paying tax at her marginal tax rate) into her SF. Reasons include: - earnings within the fund taxed at a maximum of 15%; - withdrawals of fund balance at retirement taxed concessionally or not taxed at all; - there are tax concessions in rolling over super balances into an account-based pension upon retirement.
9 (a) Do you believe that the current SG contributions made by employers are adequate to fully fund a person's retirement? Discuss.
Most industry commentators agree that the current super scheme is unlikely to provide an adequate income flow upon retirement. Some issues raised: - whether employees should be made to compulsorily contribute towards their own super - whether the current level of employer contributions is adequate - the tax concessions should be increased further to encourage people to contribute additional funds - the SF system is too complex and needs simplification for the average person to understand and be confident in contributing towards their own fund.
Pam is aged 62 and has just retired with a superannuation balance of $320,000, which includes non-concessional contributions of $60,000. Pam has decided to acquire an account-based pension with the funds. Required: Determine the minimum income payment that Pam is required to withdraw (using the payment factors on page 40).
Pam is required to take $12,800 as a minimum income pension ($320,000 x 4%)
9(b) What sort of factors would you consider in determining how much a person needs to retire on?
Some of the factors that need to be considered in determining the amount that is required to provide an adequate income upon retirement include: - current life style - expected life style upon retirement - travel plans - health issues - other investments held - debts outstanding - ownership of house
9(c) Discuss some of the issues that a client is likely to be concerned with when planning to retire.
Some of the issues would be: - when to retire - the lifestyle desired - amount needed for retirement (retirement income) - current levels of assets and liabilities - how much is still needed to be accumulated to the amount desired - what sort of income stream is preferable - social security eligibility issues - where to live - own home, with children in granny flat or retirement village (consider purchase price of such a unit) - health issues - estate planning - accumulation of wealth - investment strategy
