Regular scheduled changes to the Age Pension will occur on 1 July. There are other changes as well which will have an impact on retirees and their income over the next 12 months. Here’s our end of financial year checklist to help you plan ahead. Spoiler alert: we do not yet know the extent of all these changes – some as noted are yet to be announced. But forewarned is forearmed, so keep an eye on your inbox as we fill in the gaps in what is happening in the next financial year.
With the approach of the end of the financial year (EOFY) there’s a lot going on. Many retirees are watching and waiting to learn of any 1 July changes to deeming rates which have been frozen since July 2022. It’s anybody’s guess what will happen next, but higher deeming rates could mean the loss of Age Pension entitlements for those who have only just qualified with little margin to move on means testing.
One aspect of the EOFY that is often overlooked is tax rates on super. That’s because there is a common misconception that most retirees simply don’t pay tax. That’s not correct; many do. And how this form of tax is paid is really interesting. Read on to learn more about the ways that you are being taxed and if there is an easier way of reducing this impost.
Tax on super depends upon many variables. There are the two major ones – whether your fund is in accumulation (saving) or decumulation (spending) mode. But there are other factors at play, including your contributions, your investments and the way that you withdraw your savings.
And should you be ‘pushed’ into a retirement income product. Would that be in your best interests?
At the heart of most retirement wants lies the desire to have a strong degree of control, in the form of a secure, dependable retirement income. No surprises here. Volatility in financial markets such as that experienced during the GFC are recent memories of sudden losses that affected many retirees adversely. With the exception of the minority of retirees on a Defined Benefit Pension (DBP), the income of many older Australians remains strongly tied to the performance of financial markets, as that is where their superannuation is invested.
The Federal Government has recognised the concerns held by retirees and is expecting that super funds will engage more with their members, support their decision-making to achieve the best retirement income outcomes possible. This, in a nutshell, is what the Retirement Income covenant (a recommendation by the 2020 Retirement Income Review) requires. But the regulators believe the funds are too slow in their support of members. A recent Consultation Paper has included a template for a ‘generic ‘Lifetime Income Stream’ as an example of a product funds could offer members so that members could achieve more predictable income more simply.
The language around this offering is that super funds need to do more to ‘nudge’ members towards such a form of retirement income. It includes suggestions that members be defaulted into such a product, meaning if they do nothing else their super would be moved to a government approved Lifetime Income Stream. Defaults can be ‘hard’ – meaning forceful – or ‘soft’ meaning they are a last base action in the absence of any other activity by the member.