Should You Aim for the Age Pension with $1.2 Million in Super?
A Common Dilemma: Balancing Pension Benefits and Financial Security
It's a question that many retirees face: should we adjust our assets to qualify for a part age pension, or is it wiser to maintain a robust financial buffer for the future? This is the debate currently unfolding between a 67-year-old full-time worker and his 56-year-old part-time working wife, who together hold $1.2 million in superannuation.
The Age Gap Strategy: A Temporary Solution?
The wife, with an 11-year age gap from her husband, sees an opportunity to leverage this difference. Any superannuation in her name won't count towards the age pension assets test until she reaches pension age. This could potentially provide a temporary boost to their means testing for the age pension. However, there's a catch.
The Tax Conundrum: Weighing Pension Benefits and Tax Implications
Upon retirement, superannuation is converted into a tax-free pension. If they shift a significant portion of their super to the wife's account for pension maximization, that transferred amount will continue to be taxed at 15% earnings tax. The question arises: could the pension gained be offset by the extra tax payable? It's a delicate balance, and one that requires careful consideration.
Equalizing Superannuation: A Fair and Strategic Move
The idea of equalizing superannuation balances between a couple is not only equitable but also strategically sound, especially when considering the transfer balance cap. While there may be a temporary pension benefit for the husband once he retires, it's not advisable to orchestrate such moves solely for this reason. It's a complex decision that requires a nuanced approach.
Compensation and Taxation: Navigating the CSLR Scheme
In a separate matter, the couple's SMSF is set to receive over $80,000 in compensation from the CSLR (Compensation Scheme of Last Resort) for poor financial advice in the past. This payment will be taxed as income at a rate of 15% when received by the fund. It's a reminder that while the system is designed to protect consumers, it also comes with its own set of tax implications.
Salary Sacrifice: A Worthwhile Strategy for Retirement Savings?
For those earning $43,000 per year and looking towards retirement, salary sacrificing to super may not be the most advantageous strategy. Tax on income between $18,201 and $45,000 is already at 16%, and salary sacrificing would only reduce this by 1%. Additionally, the sacrificed funds would be locked away until the age of 60. A better option might be to make an after-tax contribution and take advantage of the government's co-contribution payment of $500.
These financial decisions are complex and unique to each individual's circumstances. It's always advisable to seek professional advice that considers your personal situation before making any financial commitments.
