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Super's Magic Pudding - A plus for baby boomers |
Once money is put into super the general rule is that it must stay there until the person entitled to it reaches 'preservation age'. |
There are some exceptions to this rule - for example, you might be able to access money before then if permanently incapacitated or suffering severe financial hardship. |
The preservation age for a person's super depends on when they were born. If you were born before 1 July 1960, it is 55. However, it increases incrementally through the next four years to the preservation age of 60 for those born after 30 June 1964. |
This makes super often less attractive to younger people, who may be more interested in paying off a mortgage. However, by lowering the deductible contribution limit to a standard $50,000 per annum after 1 July 2007, the government wants to encourage people to save for super sooner rather than later. |
There is now no age at which you have to remove your super - you can keep your entitlements in super funds indefinitely, although this might cause them to be subject to a de facto death duty if, say, the funds revert to adult children. But if someone stops being an Australian resident, a departing-Australia superannuation payment must be paid as a lump sum to them. |
The transition-to-retirement rules allow a person, provided they have reached the preservation age, to take a pension out of a fund before they actually retire. |
The main attraction of this rule will be to people over 60. They will be able to withdraw tax-free pensions from their fund and use the money withdrawn to make additional tax-deductible contributions to the fund (thus getting 'free' tax deductions). |
Further, once the fund goes into pension mode, no tax, including capital gains tax, will be payable on income derived from assets allocated to the pension fund - a magic pudding if ever there was one. |
As for paying out a pension, the starting point to consider is not tax, it is whether the rules of the fund allow payment of the sort of pension required - and some, particularly of older funds, might not. Once someone becomes entitled to a pension from a concessionally taxed fund, there is a minimum amount, based on one's age, that must be taken out each year. |
