The Catholic Leader - 7 May

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The Catholic Leader, May 7, 2017
Recent government changes to super
could affect your retirement plans
Coming to a venue near you from May 2017. Book now at or 1300 658 776
Significant changes to the rules take effect on 1 July, 2017.
Despite the changes, superannuation is still one of the
most tax-effective ways to save for retirement.
Will the changes affect your income in retirement,
which could last for 20-30 years?
Come along to one of our seminars to find out:
• The government changes to super
• What effect the changes will have
• How to grow your super
• The benefits of financial advice
Non-members, friends and family all welcome
Same dedication.
Same values.
Di erent name.
We’ve changed our name to re ect our strength, diversity
and Australia-wide membership. CSRF is now called
Australian Catholic Superannuation & Retirement Fund (ACSRF).
Visit or call 1300 658 776 today. ADVERTISING FEATURE
SUPERANNUATION
RETIREMENT
FUND ADVERTISING FEATURE
Why can’t we get super early?
Preparing for the unknown: Superannuation is forced saving for what is around the bend in later years.
By Zilla Lyons
SUPERANNUATION is one of the
key ways that Australians plan for
their future and retirement.
Employers are required to contribute to retire-
ment funds on behalf of employees.
Those funds are preserved until a condition of
release (usually retirement) is satisfied.
While there are ways to access a portion of the
funds earlier than retirement, it’s important to
restrict access to help protect a secure future for
all Australians.
There are ways to access your superannuation
earlier than retirement.
A Transition to Retirement (TTR) pension
allows someone who is still working and over
their preservation age (currently 56) to move
money from a superannuation accumulation or
normal working account into a pension account
and draw between four per cent and 10 per cent
of their account balance.
This method is considered more responsible
because it reduces the tax burden on people who
may need earlier access to their super funds for
emergencies, family issues or home maintenance
while closing in on retirement age.
If the person using a TTR pension is under
the age of 60, account withdrawals are usually
taxable at the person’s marginal tax rate but with
a 15 per cent tax rebate; people over 60 receive
those drawings tax-free.
Many people use the pension drawings to
reduce debt, to increase their salary sacrifice
to super or to re-contribute to their super fund
so that these endeavours can build wealth for
retirement.
A small percentage of people use a TTR strat-
egy to access money from an otherwise locked
system, using it frivolously and at the expense of
their final retirement savings.
What could go wrong if we allow early access
to pensions and super?
Superannuation is designed to provide income
in retirement after work-for-pay ceases.
These super savings can provide a level of
comfort in retirement and supplement or replace
the age pension.
“Delayed gratification” is the foundation of
our superannuation system: people are asked to
spend a little less today to enjoy more for tomor-
row.
This is the essence of investing as compound-
ing returns should reward patient investors.
However, like many children when faced with
one lolly now or two in an hour, some investors
will choose to take the immediate reward rather
than risk the wait.
Take the case of Paul and Susan, 56-year-old
teachers earning $85,000 who have $200,000 in
each of their TTR pensions.
As all of Paul’s pension money is classified as
taxable, the 10 per cent ($20,000) he draws for
the year will be included in his tax return at a 30
per cent tax rate while receiving a 15 per cent
rebate.
On lodgement, Paul expects his tax burden
from the pension payment to be about $2500.
Paul, however, is having a bit of a mid-life
crisis and uses the $20,000 pension payment to
buy a nice motorcycle.
Upset with Paul’s selfish use, Susan draws
$20,000 in annual payments from her TTR
account, which she spends on an overseas trip
during the Christmas holidays.
While the couple has lovely holiday photos
and a bike to show, they have withdrawn 10 per
cent of their pool of savings for retirement and
have a combined tax liability of nearly $5000.
This starts a cycle of using their TTR pension
to withdraw tax payment from their retirement
savings yet again, further depleting their savings.
In the early days of the superannuation
system, before the current rules on preserva-
tion, it was possible to access super and pay any
outstanding taxes after you left some jobs.
Many people of my vintage now regret this
easy access, as the money they spent did not add
to their overall wealth or future savings.
The holiday or new car that seemed like a
great decision is now just a distant memory.
Protecting superannuation investments is more
than a simple, individual choice.
Without significant income from super, the
ageing Australian population will likely not
be able to keep up their current consumption
patterns in retirement, which could impact the
broader community.
This will increase pressure on an overbur-
dened welfare system, compounding the situa-
tion.
Recently, there have been suggestions to allow
access to super as a means of solving some is-
sues of housing affordability.
If super could be accessed to provide funds
for a home deposit, what would be the likely
consequences?
We must consider that the possibility of super
access for house deposits would provide a ready
source of funding to fuel competition, driving up
demand and ultimately prices.
According to ASFA, the average super ac-
count holder in Australia aged 25 to 29 has an
average super balance of $16,441.
Even allowing super access to pay the deposit
on a home, this amount may be too small to
satisfy deposit requirements for home purchases
in many parts of the country; even then it would
leave people without a safety net and reset their
retirement savings plan.
Would a lack of job security and future job
losses lead to foreclosures similar to those wit-
nessed in the USA during the global crisis?
If workers have no access to home deposit
funds other than by raiding their super and have
no saving practices to demonstrate, will they
have the saving capability to repay the loan in
good times or in the event of adversity?
Could the legislation give rise to a new breed
of former homeowners who end up homeless
and without retirement funds?
Paul Keating wrote in The Sydney Morning
Herald, “to allow super savings to be withdrawn
to be used for other investments really defeats
the purpose”.
“It may be impractical and self-defeating to
help realise today’s dream of a home owner-
ship at the expense of tomorrow’s retirement
savings.”
Governments cannot force people to make
responsible financial decisions. Access to super
gives an individual responsibility to use their
savings wisely. Preservation rules within super
exist to protect an individual and their future but
also to help safeguard the nation’s economy.
Any views, opinions or recommendations
of the writer is solely their own and do not
in any way reflect the views, opinions and
recommendations of Australian Catholic
Superannuation. The views, opinions or
recommendations in the article may change
in the future.
GENERAL ADVICE WARNING
Any advice contained in this document is
of a general nature only, and does not take
into account your personal objectives, finan-
cial situation or needs. Prior to acting on any
information in this document, you need to
take into account your own financial circum-
stances, consider the Product Disclosure
Statement for any product you are consid-
ering, and seek independent financial ad-
vice if you are unsure of what action to take.
Financial advice is available to members
through an arrangement with Industry Fund
Services Pty Ltd (AFSL 232514). Call us on
1300 658 776.
Zilla Lyons is a regional manager with
Australian Catholic Superannuation and
Retirement Fund.