Superannuation account, USA News (Sydney, Australia): If you’re over 65 and have your money sitting in an ordinary superannuation account, there’s something you should check this weekend. 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 – just in one year. That’s an awful lot of money we’re giving to the government unnecessarily.
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. But, 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.
There’s a catch, of course. Once you move your money into a retirement phase account, you must start to draw out a minimum percentage of your balance every year. And the percentage you have to draw down increases as you get older, effectively requiring you to draw down your savings rather than leave them untouched inside your super fund throughout retirement. For someone aged 65 to 75, the mandatory minimum drawdown is 5 per cent of the account balance.
For many people, particularly those who’ve stopped working and rely on some form of age pension, moving into a retirement account can make good financial sense. But not everyone wants or needs to start withdrawing their super at 65. Some people have good reasons to leave things as they are, in accumulation, while others simply don’t know they can make the switch and become tax-free.
Proposed Changes to the Retirement 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 suggested every super fund offer a ready-made retirement pension with minimum withdrawals already worked out that members can activate by pressing a button.
However, experts warn that not all retirement products are equal, and automatic transfers could be used by some funds to retain members without educating them on fees, services, and performance. Critics also point out that navigating Centrelink to claim the age pension and moving super into a retirement account remains unnecessarily complicated, often forcing everyday people to pay thousands of dollars for financial advice.
