You may recall in mid-April we shared a preview of 1 July changes to superannuation.
Since then we have had many members asking questions about the various ways they might use the new contribution amounts to boost their retirement income. It seems that many of these different rules sound either incomprehensible, or you need a white board to start to understand how they relate to each other. Today we look at each of the changes and explain how you can take advantage of these new rules.
Super often gets bad press. That might be from media pundits who expect rolled gold returns year in and year out despite market ups and downs. Or it could come from account holders themselves who find the need to understand the extensive rules very challenging.
That’s understandable, but this is why it is useful to take a step back and consider the many aspects of the Australian superannuation system that make it the envy of most developed nations across the globe.
Compulsory super was introduced by the Keating Government in 1992 with initial employer contributions of 3%. Whilst some in industry predicted that this ‘largesse’ would cause the sky to fall in, it didn’t. Compulsory contributions (now known as the Super Guarantee or SG) have reached 11.5% as of 1 July this year. Consequently, a majority of Australians have a significant nest egg as they head into retirement. Those aged between 65 and 69, hold median amounts of $213,986 for men and $201,233 for women.
As you no doubt know the income and asset limits for full and part-Age Pensions were increased on 1 July this year. This is good news for many Australians who may have almost qualified for the Age Pension. It also means a slight increase in payments. This is because a ‘taper rate’ is applied to both income and assets over the threshold for a full Age Pension while still below the cut-off points. This makes it timely to step through an explanation of how taper rates work, so that you can ensure you are receiving your maximum possible income.
What are taper rates?
Around 2.6 million Australians are currently receiving either a full or a part-Age Pension.
Regardless of which pension you receive, your eligibility is based upon a means test. This means test is two-part, requiring that both your assets and your income are below a certain amount. You cannot comply with just one half of the test and whichever test has a less favourable result is the test by which your payments are defined.