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Take control of your future
Smart financial strategies for women
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OnePath – committed to financial equality
Australian girls excel at primary school, high school and university, but as they enter the workforce, various systems that were established over the last 100 years begin to work against them.
As a result, full-time working Australian women earn on average $295 per week less than men, or $15,000 a year. Extended over a typical 45 year career, the gap equates to at about $700,000 – or the cost of a house in most Australian cities.1
The cross-over point between female advantage and disadvantage typically occurs at about the age of 21, when female university graduates earn 4 per cent less in their first job than their male peers, and worsens throughout their lifetime.2
This is one of the reasons women are also more likely to retire in poverty than men. And the current retirement statistics are confronting.
Did you know?
· Women, on average, retire with only around half as much superannuation as men.3
· Around 90% of women will retire with inadequate savings to fund a comfortable retirement.3
· On average, women retire before men and are in retirement longer than men.4
· In 2010, 1 in 5 women yet to retire had no superannuation at all.5
These statistics are a stark reality for many Australian women today and as one of Australia’s leading providers of wealth, insurance and advice solutions, OnePath is committed to doing what it can to improve the lives of all women.
By harnessing the power of the ANZ Group and your financial adviser, we can help to turn the tide and restore equality so that both men and women are offered the same opportunities to build and protect their wealth.
1 Australian Bureau of Statistics, 2014, 6302.0 Average Weekly Earnings, Australia. Calculation multiplied by a 45-year career of men and women’s average weekly earnings.
2 GradStats – Employment and salary outcomes of recent higher education graduates, page 8. 3 The Association of Superannuation Funds of Australia, 2015.
4 OECD 2014 Society at a glance 2014 – OECD Social Indicators, March 2014 page 2.
5 Super system evolution: Achieving consensus through a shared vision, ASFA White Paper – Part 4 May 2013, ASFA.
Introduction 4
Superannuation
Investing in superannuation for
a comfortable retirement 7 Choose the fund that is right for you 7 Consolidating your superannuation (rolling over) 8 How much superannuation
is enough? 8
Superannuation boosting strategies 9
Salary sacrifice 9
Case study – Meet Lisa 9
Government superannuation
co-contribution scheme 10
Case study – Meet Tracey 11
Spouse contributions 11
Contributions splitting 11
Insurance
Types of personal insurance 13
Life insurance 13
TPD insurance 13
Trauma insurance 13
Income protection 13
Child Insurance 13
Living expense insurance 14
Insurance through superannuation 14
Contents
Investment
Risk and return 17 The magic of compound interest 17 Asset classes 18 Diversification 18 Cash 18 Fixed interest 18 Property 19 Shares 19 Managed funds 19 Gearing 19 Setting up investment accounts for your children’s education and future 20
Investing internationally 20
Retirement
Account-based pension 23 Age Pension 23
Case study – Meet Mary 24
Transition to retirement 25 TTR strategies 25
Case study – Meet Janet 26
Case study – Meet Anne 28
Taxation issues 29
Your retirement has never looked better 29
Estate planning
Wills 30 Power of Attorney and an
Enduring Power of Attorney 30 Trusts 30
With the help of your financial adviser, OnePath is
committed to improving equality, so that both men
and women are offered the same financial opportunities.
What is your relationship
with money like?
The answer to this question will vary among all women. Some are very involved and financially independent when it comes to making the right financial choices; yet among others, their finances may inspire feelings of anxiety or apathy.
Whatever you may feel, putting yourself in charge of your money can give you more choice about how you live your life. The cliché is true – it’s the small steps that can make a difference, not only to your financial situation, but to your overall wellbeing.
As mentioned earlier, there are stark differences in the financial health between men and women in Australia. In part, this is due to the greater likelihood for a woman to take time off work to care for family. Furthermore, some women may not work at all or they may work part time. Both working situations have the ability to diminish one’s earning capacity and the capacity to save, which can sometimes result in a lack of financial control. Another key difference is that traditionally, women have also been employed in occupations which are relatively lower paid, such as hospitality, retail, education and nursing, with fewer ancillary financial benefits than industries dominated by men.
However, trends in society are changing and more women are engaging in financial decisions either for themselves or their households.
And by harnessing the power of the ANZ Group and your financial adviser, OnePath is committed to help improve the financial wellbeing of all Australian women. It is never too late to start growing your wealth using effective strategies and seeking professional advice about your superannuation, insurance and investments.
Regardless of what stage in life you are at, this booklet offers powerful strategies and insights on important financial issues you may wish to consider during key life stages.
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Superannuation
Superannuation is something many people don’t think about enough. Generally, since you can’t access it until you retire (which may be a long way away), it’s not something many people tend to focus on. Your superannuation may be the most important source of retirement income, so even though your retirement seems a long way off, it is frightening when you consider that today around 90% of women will retire with inadequate savings to fund a comfortable retirement.1
When you consider the fact that many women will take time out of the workforce to raise a family and some only return on a part-time basis or not at all, your superannuation savings will be greatly affected by those years out of the workforce.
Additionally, women’s salaries are usually lower than their male counterpart and they tend to contribute more of it towards their household and their children. And having a lower superannuation balance
1 The Association of Superannuation Funds of Australia, 2015: Help ASFA close the $92,000 superannuation gender gap this Women’s Day.
2 2015 Intergenerational Report, ‘Australia in 2055’. Page 5. Source: The Commonwealth of Australia. becomes more problematic when you
consider that women generally retire before men do and they tend to have a longer life expectancy – 89 years for women and 86 years for men.2 This ultimately means women’s financial security in retirement is at risk and they are more likely to outlive their retirement savings.
With the added effects of inflation on the cost of living in the future, the need for all Australian women take control of their superannuation becomes paramount. Here are the basics of superannuation and a few strategies to help you boost your retirement savings.
Investing in super for a
comfortable retirement
Most Australians fund their retirement from their superannuation. It is a great tax-effective vehicle to build wealth, so it may be worthwhile to invest as much as you can in your pre-retirement years. Most superannuation funds offer a range of different investment options under the key asset classes (shares, property, fixed interest and cash), or a combination of these asset classes.
The overall tax paid on your superannuation investment is generally a maximum of 15% which is very generous when compared to other traditional forms of investing, such as personally held assets which could be taxed
as much as 49% (including Medicare levy and Temporary Budget Repair levy). And once you reach age 60, the benefits become more compelling, as you’ll generally be able to access your super tax free – a benefit that is hard to surpass!
Choose the fund that
is right for you
Most Australians have a choice of where to put their superannuation, so it’s worth reviewing your particular options instead of going with the default superannuation fund of your employer.
Before you choose a superannuation fund that will work best for you, investigate what your superannuation is invested in (shares, property, fixed interest, cash) and what your attitude to risk is (conservative, balanced or high growth).
Also consider the fund’s investment performance, investment choice and insurance – these elements affect the growth of your superannuation. When you are switching superannuation funds, check the insurance cover available in the new fund and that you will qualify for the required level of cover.
Your financial adviser can help you make a decision that is right for you.
“Retirement seems
such a long way off”
Consolidating your
superannuation
(rolling over)
If you have held different jobs over the years, you may have multiple superannuation accounts. This could cost you money if you’re being charged multiple fees, so it may be a good idea to consolidate all your superannuation accounts into one account.
Simply visit onepath.com.au/lostsuper to search for lost superannuation for free. Type in ‘lost superannuation’ in the search box, click on the ‘Go’ button, then select ‘OnePath can help you find your unclaimed super’.
Consolidating your superannuation means that your money works harder to increase your retirement savings. When your superannuation is in one place, you can keep better track of it. It also means you may only be paying one set of fees. But remember, before rolling over money from other funds, check you are comfortable with the exit and withdrawal fees and other charges that may apply. Also check if any benefits, such as insurance, will be lost if you leave that fund. When you are ready to rollover your superannuation to one account, contact your main superannuation fund and they should instruct you on how to complete the necessary transfer forms.
How much
superannuation
will be enough?
Generally, Australian employers are required to contribute at least 9.5% of your ordinary time earnings to superannuation, but will this be enough for you to live comfortably in retirement? Current research suggests around 90% of Australian women won’t have enough savings to fund a comfortable retirement.1 The amount of superannuation you may need depends on your personal circumstances, such as your age, income, desired retirement age, desired retirement income and superannuation balance. However, you should consider the following as well:
• How much time you have to accumulate your superannuation, especially if you plan to take time out of the workforce • The cost of living and effects of inflation
in the future
• The increase in life expectancies meaning a longer retirement period • Your attitude to risk and return • How much you have already saved for
your retirement
• If you have dependants to consider • Any other investments you may have • The type of lifestyle you wish to have
in retirement.
Superannuation
boosting strategies
Salary sacrifice
Salary sacrificing is a powerful way to grow your superannuation balance. When you salary sacrifice, you are contributing part of your pre-tax income into your superannuation fund. There are potential benefits to this strategy as it may reduce the income tax you pay and exponentially boost your retirement savings.
Working out whether salary sacrifice is right for you will depend on how much you earn and your personal circumstances. If you do decide that this might be the right strategy for you, then make the necessary arrangements with your employer (if available) on the percentage you want to sacrifice.
The sooner you act the better, as you cannot salary sacrifice any salary already received.
Salary sacrifice is an important strategy to consider regardless of whether you are having a family or taking a career break.
Case study
Meet Lisa
Lisa is 35 years of age and is a marketing executive earning $75,000 p.a. In addition, her employer contributes $7,125 into Lisa’s superannuation (9.5% of $75,000) irrespective of her salary sacrifice amount. Lisa is considering making a $10,000 salary sacrifice contribution to her superannuation in the 2015/16 financial year.
The below table shows the difference salary sacrificing $10,000 into superannuation will make for Lisa:
No salary sacrifice Salary sacrificing $10,000 to superannuation
Salary before income tax $75,000 $65,000 Income tax payable* (Marginal tax
rate and Medicare levy 34.5%)
$17,422 $13,947 Lisa’s take home salary (after
income tax is taken out)
$57,578 $51,053 Total employer contributions
(including salary sacrifice)
$7,125 (subject to 15% superannuation contributions tax) $15,250** (subject to 15% superannuation contributions tax)
Lisa’s $10,000 salary sacrifice superannuation contribution has only reduced her take-home salary by $6,525 and increased her superannuation balance by $8,500. * Based on 34.5% Income tax rate.
** Assumes Lisa’s employer doesn’t reduce SG contributions in line with her reduced salary. 1 The Association of Superannuation Funds of Australia, 2015
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Government superannuation
co-contribution scheme
If you are eligible for government co-contributions, this is another smart way to boost your superannuation balance. Under the scheme, if you earn a total income of $35,454 or less, and who meet the eligibility criteria, the Government will contribute $0.50c for each after-tax dollar you contribute, up to a maximum co-contribution of $500.
The government co-contribution amount reduces if you earn more than $35,454 and cuts off for those earning a total income of $50,454 or more. This is a great incentive for you to put extra money towards your superannuation.
The co-contribution amount depends on how much you contribute and your total income for the financial year. The below table shows the government co-contribution amounts payable in 2015/16 over a range of incomes:
Total income Amount of minimum personal after-tax contribution required
Maximum government co-contribution received $35,454 or less $1,000 $500 $38,454 $800 $400 $41,454 $600 $300 $44,454 $400 $200 $47,454 $200 $100
$50,454 or more n/a Nil
Spouse contributions
A spouse can make contributions into the other spouse’s account, regardless of income. When a spouse makes contributions into your superannuation account, they may be eligible for a tax offset of 18% on up to the first $3,000 of spouse contributions, a maximum tax offset of $540. This tax offset reduces once the second spouse’s income reaches $10,800 and cuts out once income reaches $13,800.
Spouse contributions are suitable for those who are low income earners but have a higher income spouse. If you plan to take time out of work, you can still build a superannuation nest egg with the help of your spouse making contributions into your superannuation account.
Contributions splitting
Couples who are eligible for
superannuation splitting may be able to split their superannuation contributions. This means couples can transfer certain contributions from one spouse’s account to the other’s account.
Some of the main benefits of contributions splitting are that you may be able to have earlier access to these benefits and that they are concessionally taxed. In addition, it can be a tax effective way of funding life insurance. Superannuation splitting may be used to increase the superannuation savings of one member of a couple – it can even-up the distribution of superannuation savings between each member so that both members may be able to access tax free lumps sums, if they retire after preservation age, but before age 60.
Case study
Meet Tracey
Tracey is 40 years of age and is a part-time administration assistant earning $35,000 p.a. Given her total income is less than $35,454, she qualifies for the government
co-contribution scheme. If she makes a personal after-tax superannuation contribution of $1,000, she will receive a government co-contribution of $500 – for no additional effort!
Would you like more information?
To find out, how you can boost your superannuation balance or calculate how much superannuation you will need for your future, speak to your financial adviser. Your financial adviser can tailor solutions for your individual needs and circumstances.
If you are just starting out in the workforce or working
part-time and may be earning a low income, this
scheme is especially advantageous for you to boost
your superannuation balance.
Insurance
Whether you are a working professional or a full-time homemaker, your insurance cover needs to reflect the cost of replacing everything you do – including the things you don’t get paid for.
The bulk of unpaid domestic work is typically done by women. On top of replacing this ‘unpaid’ contribution at home, there could be medical bills and extra child care costs to worry about. These all need to be considered when you take out insurance. And it’s not just women with families who are at risk; many single professional women do not have sufficient insurance to protect themselves and their incomes against sickness and injury.
Types of personal
insurance
Life insurance
Generally, life insurance cover pays a lump sum amount to your nominated beneficiaries if you die. If you are diagnosed with a terminal illness, a lump sum amount may be paid to you. This money can help your family take care of the mortgage or any other debts, pay for your hospital and funeral costs, and provide an ongoing income for your dependants.
Total and Permanent Disability
Insurance (TPD)
A TPD insurance policy will generally pay you a lump sum or equivalent instalments if you become totally and permanently
“I want to be sure my
family is protected”
disabled. This money can help you takecare of your mortgage and debts, pay your medical expenses and cover any necessary modifications to your home.
Trauma insurance
A trauma insurance policy generally pays a lump sum or equivalent instalments to your nominated beneficiaries if you are diagnosed with a specific illness or injury covered by the policy – such as cancer, stroke or heart attack. This money can help you pay for your medical expenses, take care of your mortgage and debts, and generally keep your household afloat while you focus on getting better.
Income protection
Income protection generally pays a monthly benefit of up to 80% of your income if you’re sick or injured and unable to work. This money can help replace the income lost through your inability to work and can help you stay on top of your debts, pay for treatment and rehabilitation, and generally give you some breathing space until you can return to work.
Child insurance
A child insurance policy typically pays a lump sum or equivalent instalment if your child is diagnosed with a specific illness, suffers a serious injury or dies. This money can help you cover the costs of caring for a child, such as medical expenses, stopping work, transport and accommodation costs or home adjustments.
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Living expense insurance
Living expense insurance is designed specifically for people who work part-time or not at all – making it ideal for homemakers. Typically it pays an agreed monthly benefit if you become totally disabled. This money can help you pay for treatment, make any necessary modifications to your home, and generally help you keep the household running.Insurance through
superannuation
Taking out and topping up your insurance inside superannuation can be a cost-effective way to protect yourself and your family. Using your superannuation to pay your insurance premiums can have these benefits:
• Tax effectiveness: you may be eligible to purchase insurance inside your superannuation fund using pre-tax dollars – e.g. via salary sacrifice
contributions – or using your employer’s Super Guarantee contributions.
• Increased cash flow: paying your insurance premiums inside your superannuation fund means you don’t necessarily have to pay out of your pocket for insurance.
• Convenience: You can conveniently pay for your insurance premiums from your super fund, without ever having to worry about receiving bills or forgetting to renew your cover.
• Cheaper premiums: if you are part of a group or employer plan, your superannuation fund may have negotiated a lower premium rate for their many members.
• Medical test exemptions: Depending on the type of insurance offered within your superannuation fund e.g. group insurance, you may be automatically accepted for cover (up to certain amounts)– without having a medical examination or providing medical history.
Always check the level of insurance cover, the policy and the terms and conditions offered through automatic acceptance. When taking out insurance inside superannuation, you should bear in mind there may be different rules and timeframes around accessing your money in the event of a claim.
You should also consider making additional superannuation contributions, as your retirement benefits will be reduced by the premiums deducted from your superannuation fund.
Would you like more information?
To find out more, speak to your financial adviser. Your financial adviser can tailor solutions for your individual needs and circumstances.
“Having insurance through
our super works for us”
Investment
Investing at any stage in your life can help grow your wealth and provide an additional income stream.Before you start investing, it is important to identify your financial goals, for example, you may want to save up for a holiday or ensure you have enough for retirement. Once you have defined your financial goals, you can then choose the right investment to suit your budget and lifestyle.
Time frame Investment goals
Short term (1 to 3 years) • Car • Holiday • Starting a family Medium term (3 to 5 years) • House deposit • Boat • Regular income • Extended work leave Long term (7 years or more) • Children’s education fund • Retirement
Before you start investing, you should draw up a budget to work out how much you can afford to invest, without having to compromise your lifestyle too much. Draw up a monthly personal budget and note down the income you receive after tax, all your fixed expenses such as regular bills, rent and car/transport expenses, as well as the variable expenses such as entertainment, lunch and grocery expenses. For each category, work out an annual total. Whatever amount you have left over can be put towards your investment, but it is a good idea not to invest all your spare cash, in case of emergencies or extra expenditures that may arise throughout the year.
“Our budget helps us
manage our money
and plan our future”
Use OnePath’s budget planner to start calculating your budget. Visitonepath.com.au/supercalculators and click on Budget Planner.
Risk and return
It is important to recognise the level of risk you feel comfortable with for different investment types. Some investors are more risk averse and prefer to invest in safe, low-interest cash and bank deposits where the value of their money is unlikely to fall. Other investors may accept that the value of their money may go down over short periods of time, but have the potential to earn a higher return over a longer period of time, if they invest in shares or property. It is important to remember that losses are always possible, depending on the fluctuations in the sharemarket.
The magic of
compound interest
The sooner you start investing, the better. This is because of the powerful effects of compound interest.
For example, if you decide today to invest an initial amount of $1,000, then contribute $100 per month into a managed fund that earns 8% p.a., in 10 years’ time, you would have $20,071. If you started investing the same amount three years later, you would only have $12,708. This is where the magic of compound interest takes effect.
18 19 The longer you invest for, the greater the
difference in the compound interest, which is why starting to invest now and not waiting until later is important.
Asset classes
There are four main asset classes you can put your money into. The return you achieve and the level of risk associated is different for each asset class.
You can invest in cash, fixed interest (such as bonds), property and shares. To build a balanced portfolio, you can invest in a combination of these asset classes, this method is called diversification.
Cash and fixed interest asset classes are considered ‘defensive’ assets, which means they are designed to defend an investment from losses. These tend to be more popular for short-term or risk averse investors, who prefer safe, more secure investments with some consistency in returns.
Shares and property asset classes are considered ‘growth or aggressive assets’ because they tend to provide overall higher long-term returns but they are considered more volatile (higher risk).
Cash
Cash funds include bank deposits and investments in securities such as treasury notes, with a term of less than one year. Investing in cash via a cash management trust could be good for short-term financial goals such as saving for a holiday or a car, as there is little risk of losing money over short periods of time.
Fixed interest
A fixed interest investment or ‘bond’ is a debt security issued by a corporation or Government in return for cash from an investor.
Bonds are the most common form of fixed interest securities. They are agreements to repay a fixed amount of money at a predetermined date in the future (maturity date).
Fixed interest investments are commonly referred to as ‘income-producing’ investments.
Diversification
Diversification involves spreading your investment over a number of different asset classes (cash, fixed interest, property and shares) to provide more consistent overall returns. It is a good way to reduce the risks associated with investing over short periods of time. By not having all your money in one type of investment, the high returns you receive from one investment can sometimes offset any poor performance in another asset class.
Interest rates can impact on the value of a bond, therefore they can be riskier than cash, but bonds can potentially offer better returns.
Property
Property investments can include investments in direct property, listed property trusts (LPTs) and other property securities. LPTs invest in a range of residential and commercial property, office buildings, hotels and industrial properties.They are pooled property investments which are broken into units and listed on the stock exchange like shares in a company.
Funds which invest in property securities allow you to take advantage of the benefits of diversification from investing across a range of different property sectors. Property investments have a higher risk than fixed interest investments, but are generally considered to have less risk than shares.
Shares
Shares or stocks are securities representing ownership of a company. When you buy a share in a company, you become a joint owner of the business. When companies distribute profits via dividends, the investor receives part of it.
Shares are generally known to provide the potential for the highest return of all the asset classes over the long term, but a company’s value can rise or fall due to changes in economic and industry conditions and the company’s profitability means they carry the highest risk of loss on your investment.
Managed funds
A managed fund (or managed investment) is made up of a pool of money which allows people with similar investment goals to individually invest an amount of money into the fund. Managed funds are good for those wanting to grow the value of their money as an alternative to traditional term deposits and bank savings accounts.
Managed funds are managed by professional fund managers who decide which assets to purchase. This means that you do not have to accept the responsibility of buying investments yourself and can take advantage of your fund manager’s expertise and experience. Managed funds are easy to get started, with many funds only requiring $1,000 as an initial investment to begin investing. They cater for all types of investors from people with as little as $100 to invest per month to those with larger sums to invest.
Gearing
Gearing, or borrowing to invest, can be useful in allowing you to borrow and invest more in order to achieve greater investment returns. It makes sense if the investment returns you achieve will exceed the cost of borrowing, but sometimes it can also generate greater losses. This long-term strategy would suit investors who can cope with higher risks and have income from other sources to service the loan. One of the potential benefits of gearing is the tax effectiveness, where you may be able to deduct interest expenses and ongoing borrowing fees for tax purposes. High Low High Exp ec te d r et urn Expected risk Cash Fixed interest Property Shares
Investing for your children’s
education and future
School fees are expensive and if you plan to send your children to an independent or private school, it is a good idea to start saving for their education as early as possible.
Depending on the area and type of school, some independent and private school fees can cost upwards of $15,000 per year. That’s not including school books, uniform, extracurricular activities and other necessary items which are usually in addition to the standard tuition fees. This means that some parents even have to work two jobs to make ends meet.
Popular options to invest for a child’s education and future include a cash management trust (CMT), an investment bond or a managed fund. By investing early you can watch your money grow with the magic of compound interest. So by the time your children have reached school age, you should have a nice little nest egg to cater for all the educational costs.
Investing internationally
When you invest overseas, it gives you access to growing economies, geographic and sector diversification, a better spread of risk and the potential for higher returns over the longer term.The main advantage of investing overseas is access to investments not available in Australia. Some of the world’s largest and most successful companies such as Microsoft, Apple and Coca-Cola are only listed on international stock exchanges. Buying direct shares in overseas companies can be complex, as well as having currency exchange risks. Some alternatives are to invest internationally through your superannuation fund or a managed fund which invests in international shares and may manage the currency risks.
Speak to your financial adviser for more
Speak to your financial adviser to create an investment plan that is most suitable for your personal goals and circumstances.
“Investing early means
I can give my daughter
the best possible start”
23 You’ve worked hard to build your current
lifestyle, so you deserve to retire on your own terms. However, you still need to have a regular income to help you pay for bills and cater for your spending patterns. To live comfortably in retirement, the required amount is currently around $430,000 for a single person and around $500,000 for a couple1 (assumes part receipt of the Age Pension). Though this may vary depending on your own personal needs and objectives.
Hopefully, you would have invested in your superannuation during your working years and made contributions to your account to boost your retirement income as much as possible (see superannuation section, page 6). And thankfully, there are strategies and certain social security support to maximise your retirement income.
When you reach retirement age, there are two ways you can access your retirement income. You can either take it as an income stream or as a lump sum, or a combination of both.
Account-based pension
The most flexible type of income stream is an account-based pension. It is a
tax-effective investment that invests eligible superannuation savings to pay you a regular income stream until your account balance is exhausted. How long it lasts will depend on how much you withdraw each year and what investment earnings you receive.
Age Pension
Centrelink determines eligibility for the Age Pension by applying income and assets tests.
Entitlement to the Age Pension can be lost by failing either test. The rate at which the Age Pension starts to decrease is $1.50 per $1,000 of excess assets, but your own home is not counted in this test. Income over $162 a fortnight for a single person or up to $288 a fortnight for a couple combined, will result in a reduction in your pension of 50 cents in the dollar for those who are single and for couples (combined)2.
As at 1 July 2015, a homeowner will not be entitled to the Age Pension where total Centrelink assessable assets are at least:
As at 1 July 20152
Single homeowner $779,000
Couple homeowner $1,156,500
2 Please see www.humanservices.gov.au for more detailed information. Transitional rules may apply to some existing Age Pension recipients.
Retirement
Income streams
An income stream provides a regular source of money used to fund a person’s retirement. It’s an investment that allows you to receive regular income payments when you retire and will enable you to manage your ongoing income and lifestyle.
1 Source is ‘The ASFA Retirement Standard – March 2015’
“I want the lifestyle
of my choice”
Transition to Retirement
Superannuation rules allow working Australians options in transitioning from work to retirement. If you have reached your preservation age (currently age 55), subject to the rules of your fund, you can draw on your superannuation without having to retire permanently from the workforce.
This strategy is called Transition to Retirement (TTR).
Under these rules, even if you’re still working and are under age 60, you can receive your superannuation as a non-commutable account-based pension. Broadly speaking, this means you can choose between a range of pension payments, but you cannot convert any of the balance into a lump-sum cash benefit until you retire or reach age 65. A 10% cap applies to transition to retirement pension payments.
TTR strategies
Here are some ways to use the TTR initiative to your advantage:
1. Maintain your current
lifestyle and spend fewer
hours at work
You can now reduce your work hours and supplement the reduced salary by drawing from your ‘accumulated super benefit’ through a TTR income stream.
2. Continue to work the same
hours and boost your
retirement savings
Sometimes, you can combine a TTR income stream and salary sacrifice to increase your retirement savings.
3. Top-up your income with
your super
If you have sufficient retirement savings, you can use a TTR pension while you are working full-time to boost your income today. The increased income can be used to reduce your debt, or fund projects such as home improvements.
Case study
Meet Mary
Mary is 65 years of age and single. She owns her own home and given her level of assets, she never thought that she would be entitled to the Age Pension.
Her details are:
Superannuation pension (asset tested) $400,000
Personal effects $20,000
Car $10,000
Cash at bank $30,000
Total $460,000
What does the Age Pension, as at 1 July 2015, mean for Mary?
Mary’s Centrelink assessable assets have to exceed $779,000 before losing entitlement to the Age Pension. Mary’s total Centrelink assessable assets are $460,000. She is now entitled to a part Age Pension of approximately $478.45 per fortnight ($12,439.70 p.a.). Mary can also take advantage of additional concessions provided to holders of the Pensioner Concession Card – this card is generally available to pensioners.26 27
Case study – ease into retirement
Meet Janet
Janet is 58 years of age and is a store manager earning $35,000 p.a. ($31,553 after tax). She has a superannuation account balance of $240,000 and plans to fully retire from the workforce at age 65.
Janet is looking to reduce her work hours so she can help care for her newborn grandchild when her daughter returns to work. Janet hopes to continue working three days a week.
Janet also puts $40 a fortnight into her superannuation account from her after-tax income. This qualifies her for the maximum Government co-contribution of $500 p.a. Janet is keen to maintain this arrangement, however she is concerned about meeting her living expenses if she reduces her working hours.
The strategy
By commencing a TTR pension, Janet can still receive the same take-home income as when she worked full-time – even after reducing her work hours.
The TTR strategy supplements Janet’s reduced salary of $21,000 with a pension payment amount of $11,545 p.a., so she can still maintain the same take-home income of $31,553. Janet can still qualify for the maximum Government co-contribution of $500, if she contributes $1,000 in the financial year, as an after-tax contribution.
It is important to be aware that drawing down superannuation benefits to supplement income can result in less superannuation in retirement. This is something that Janet must consider when deciding to reduce her work hours.
Notes: Janet’s superannuation account balance of $240,000 is comprised of a 70% taxable component and 30% tax-free component.
She is also entitled to the low income tax offset.
“Transition to retirement
means we have more time
with each other”
Case study – boost your retirement savings
Meet Anne
Anne is 55 years of age and an advertising manager earning $90,000 p.a. She enjoys her job and has no immediate plans to reduce her working hours. She does, however, feel that age 65 would be a good time to retire from the workforce to make the most out of her retirement.
Anne has a superannuation account balance of $300,000 invested in a balanced option that has historically earned 7% p.a. Anne has heard about the Transition to Retirement (TTR) rules and is interested in finding out how she can benefit from this strategy.
The strategy
Anne’s financial adviser suggests that she consider establishing a Transition to Retirement (TTR) pension. This will mean that Anne will need to salary sacrifice a significant portion of her pre-tax salary into her superannuation account. Anne is initially concerned because she does not want to change her lifestyle and receive a lower take-home income.
Her financial adviser explains that by implementing a TTR pension, Anne can supplement her income from her retirement savings while sacrificing a portion of her income into her superannuation.
Anne currently receives $66,953 in after-tax income. Anne’s financial adviser explains that if she salary sacrifices $26,450 p.a., she will still receive $50,125 p.a. in income from her employer. Her financial adviser then explains that Anne can supplement her reduced income with pension payments of $21,230 p.a. from a TTR pension using her existing superannuation savings. This will mean that after tax, Anne will still receive $66,953. Anne is happy that she will receive the same income and continue to live the lifestyle she enjoys, but wants to know how this will benefit her retirement savings. Her financial adviser explains that in the first year, her net salary sacrifice superannuation contributions of $22,482.50 exceed her TTR pension payments of $21,230. In addition, the investment returns within Anne’s pension are not taxed. This means that in the first year alone, Anne’s retirement savings are boosted by an additional $3,572. And it gets better. When Anne turns 60, the payments from her TTR pension are tax free. This means she can reduce her pension payment amount and boost her retirement savings further.
For example, if Anne was 60, she could still receive the same after-tax income of $66,953 by drawing pension payments of $19,828 and her retirement savings would be boosted in one year by $5,057.
Assumptions: Anne’s superannuation account balance of $300,000 is all taxable and fully preserved.
Superannuation Guarantee is assumed unchanged at 9.5% of the original earnings base, no taxation deductions have been claimed. Qualifying private hospital cover is in place.
Talk to your financial adviser or tax specialist
to make the most of your retirement plans.
Taxation issues
Your retirement has never
looked better
Generally, once your superannuation benefits become accessible, you can either take lump-sum payments or commence a retirement income stream.
In many cases, once you attain age 60, you will not pay any tax on these lump sum superannuation withdrawals or superannuation pension payments.
If you are accessing your superannuation before age 60 and you have reached your preservation age, no tax is payable on your lump sum amount below a prescribed low rate cap (i.e. $195,000), with the balance over this cap taxed at a maximum of 15%. Additionally, if you access your super before age 60, you will generally be taxed at marginal rates for superannuation pension payments, however you may be eligible for a 15% tax offset.
30 31 After a lifetime of working hard and
accumulating your wealth, you will want to know that it is distributed according to your wishes. Many women do not want to think about making a Will or estate planning, but knowing that your loved ones are taken care of after you die could be a great comfort to you. Without adequate estate planning and a valid Will, you can expose your family and dependants to serious, unnecessary risks and burdens, such as your Will being contested after your death, your loved ones having to administer your estate, your wishes not being legally enforced and the chance that your dependants will not be looked after as you had wished.
Wills
Your Will forms the basis of your estate plan and will determine the distribution of your estate assets to your beneficiaries. It allows you to choose your executor to carry out your wishes, recommend a guardian for any minor children and establish a trust for a minor child or another specific purpose. Not all assets are included in a Will. A financial adviser can help you decide which assets are and are not within the control of your Will, help you plan your Will and explain the taxation implications involved. Dying without a valid Will is called dying ‘intestate’ and you risk your estate being distributed by strict state legislative requirements.
You lose the choice of how your assets are distributed and who benefits from your estate.
Power of Attorney and
an Enduring Power of
Attorney
A Power of Attorney (POA) is a legal document that ensures someone you trust will manage your affairs. You can appoint family members, friends or a professional trustee company to act as your Attorney. A way to plan for the future is to make an Enduring POA. This is a legal document you can use to appoint a person to make decisions about your property or financial affairs if you lose mental capacity.
A general POA ceases to have effect after you lose the mental capacity to make financial decisions, whereas an Enduring POA will continue even after you lose mental capacity. If you do not have an Enduring POA, there may be no one with legal authority to manage your financial affairs and a financial manager will need to be appointed to manage your affairs.
Trusts
You can also distribute assets via a trust. A trust is a legal structure used to hold assets that can be owned by an individual, family or business.
It is a useful means to pass on a family business, to make a gift to charity or to be flexible in distributing your assets for tax purposes.
Estate planning
“It’s nice to have
more time with
my grandchildren”
You should also nominate beneficiaries of any insurance
and superannuation payouts to ensure these proceeds
are distributed according to your wishes.
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OnePath Custodians Pty Limited (ABN 12 008 508 496, AFSL 238 346, RSE L0000673) is the issuer of this information. The issuer is a wholly owned but non-guaranteed subsidiary of Australia and New Zealand Banking Group Limited (ABN 11 005 357 522) (ANZ).
The information in this guide is our interpretation of the law and does not represent advice. The information is current as at June 2015 but is subject to change. The information in this document is of a general nature only and has been prepared without taking account of your personal needs, financial circumstances or objectives. Before acting on this guide, you should consider the appropriateness of the information, having regard to your needs, financial circumstances and objectives. Please see your professional adviser for independent advice taking into account your individual circumstances. Before acting on this information, you should consider the appropriateness of the information, having regard to your needs, financial circumstances and objectives. The case studies used are hypothetical and are not meant to illustrate the circumstances of any particular individual. Whilst every effort has been made to ensure that the assumptions on which the case studies are based are reasonable, the outcomes may be based on incorrect assumptions or may not take into account known or unknown risks and uncertainties. The results ultimately achieved may differ materially from the case studies. You should read the relevant Product Disclosure Statement available at onepath.com.au and consider whether a particular product is right for you before making a decision to acquire or continue to hold the product.
