Super tax, USA News (Melbourne, Australia): If you’re over 65 and have your money sitting in an ordinary superannuation account, there’s something you should check. You might be paying tax on your super’s investment earnings that you no longer need to pay, and you most certainly wouldn’t be alone in doing so.
Research from super fund HESTA estimates that 1.8 million Australians who could have moved their super into a retirement phase account haven’t done so. Collectively, they could be missing out on about $2.5 billion a year in potential tax savings forgone in just one year.
While you’re building your super in the accumulation phase, your investment earnings are taxed at up to 15 per cent, and your capital gains at up to 10 per cent. However, once you meet the eligibility criteria, you can move your money into a retirement phase account where you receive an income from that super, and your investment earnings and capital gains are generally tax-free up to certain limits.
Once you move your money into a retirement phase account, you must start to draw out a minimum percentage of your balance every year. The percentage you have to draw down increases as you get older. For someone aged 65 to 75, the mandatory minimum drawdown is 5 per cent of the account balance.
While moving into a retirement account can make good financial sense for many people who have stopped working and rely on the age pension, not everyone wants or needs to start withdrawing their super at 65. Some have good reasons to leave things in accumulation, while others simply don’t know they can make the switch or find the systems too difficult.
Industry experts are debating how to reform the system. HESTA chief Robbie Campo wants super funds to be able to automatically move eligible members into retirement accounts unless they choose to opt out. Meanwhile, actuaries Nick Callil and David Knox have suggested that every super fund offer a ready-made retirement pension activated by a single button, with a further proposal to force people into a retirement income stream at age 75.
