Super: Looking to June 30 and beyond
While saving in super is an extremely long-term exercise, many of us focus on improving our immediate superannuation positions as the end of another financial year looms.
For those still in the workforce, year-end super planning typically includes thinking about whether to make extra contributions before the end of the financial year.
Before making extra contributions by June 30, it is worth considering whether to take professional advice regarding such issues as the annual contributions caps and the possible consequences of exceeding those caps.
And it is worth considering taking advice about whether it is appropriate to make extra-large contributions within the caps given an individual's personal circumstances, including the state of current retirement savings, age and years to planned retirement.
As the financial year draws to a close, many members making voluntary contributions will check how their contributions so far in 2014-15 measure against their concessional (before tax) and non-concessional caps (after-tax) contributions.
Significantly, compulsory contributions count towards the concessional contributions cap. (Concessional contributions comprise compulsory and salary-sacrificed contributions as well as personally-deductible contributions by eligible self-employed members.)
It is crucial not to leave super contributions until the last minute as this could lead to the amounts not being credited into your super account for the current financial year. This can possibly lead to not maximising contributions in one financial year and possibly to overshooting contribution caps in the following year.
As emphasised in the Australian Superannuation Handbook 2014-15, published by Thomson Reuters, the tax office considers a contribution by electronic transfer is not made until the amount is actually credited to a super fund's bank account.
One of the end-of-financial year issues that increasing numbers of SMSF trustees are addressing with the ageing of the population is that if a fund doesn't pay the minimum annual superannuation pension, assets backing the pension payment could lose their tax exemption. (The minimum pension payable ranges from 4 per cent to 14 per cent, depending upon age, of pension assets in a fund.)
Critically, year-end planning for super ideally include putting your superannuation affairs into order for the new financial year.
Super matters to think about for the 2015-16 financial year include whether to make higher salary-sacrificed contributions in the 12 months ahead. Under tax law, arrangements to salary-sacrifice super must be in place before the money is earned.
Another forward-thinking super matter is whether a fund member will become eligible for a transition-to-retirement pension sometime in 2015-16. Super fund assets backing the payment of a super pension are no longer subject to tax. (Fund members from age 55 are eligible for a transition-to-retirement pension even if still working.)
Many fund members no doubt treat the end of the financial year as a prompt to review their superannuation positions to maximise their opportunities before June 30, for the financial year ahead and for the very long term. There is much to think about.
By Robin Bowerman
Smart Investing
Principal & Head of Retail, Vanguard Investments Australia
31 May 2015