Question 1

When I use a simple online compound interest calculator to calculate growth – say $300,000 at 8 per cent over 10 years – I get a very different result from using a similar online superannuation calculator to project my super balance over the same period.

I understand the super calculator is adjusting for fees, tax etc, but the conclusion of these two online tools sees a $200,000 difference.

Which is the more reliable calculator to predict future balances? 

You raise a good question.

There is not just a difference between a non-super and superannuation calculators. There are huge differences between calculators which should be like for like.

Recently Super Consumers Australia tested 22 superannuation retirement calculators from some of Australia’s biggest super funds.

Using the same scenario for each their report found that there was a 42 per cent difference in projections between the lowest and highest figure. Yikes.

This could really steer you down the wrong path or at least give you the wrong impression on how you are tracking.

Differences normally come down to:

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• Assumed rate of return
• Dollar and/or percentage of fees applied (if at all)
• Compounding period (monthly, six monthly or yearly etc)
• Super funds generally assume a tax on earnings of up to 15 per cent
• Today’s dollars versus future dollars. This is a big one. Is it just a straight-up calculation or do they consider the likely impact of inflation on the return? For example, most super calculators, because they are long-term, will assume an inflation rate of somewhere between 2-4 per cent. This results in your calculation showing a lower end value because it has taken the possible effect of inflation into account and given the results in ‘todays dollars’.

Superannuation or retirement calculators may also include a range of other assumptions that are not present in non-super calculations.

Most if not all of these assumptions can be checked and changed.

I suggest using the Moneysmart calculators, choosing the one that best suits your situation and then ensure you understand the default assumptions and adjust if required.

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If it’s in relation to superannuation, you should also try out your fund’s calculator for comparison. The super funds calculator may be publicly available, or some may be just for fund members, in which case, you would need to log in first.

Question 2

I am 69 years old, retired, and receiving a full age pension along with an income stream from my superannuation account.

My wife has stopped working as she approaches 60.

At 60, can she withdraw money from her accumulation super account, or does she need to start a transition to retirement or income stream since she has stopped working?

If she does either of these, will her super be assessable, and will it impact my pension? What is the best way to go about it?

Once your wife turns 60, and if she is retired from the workforce, then there are no restrictions on what she can do with her super:

1. Leave it as is
2. Start a pension with it
3. Cash it out
4. A combination of the above

However, if she does start a pension or cash it out and keep it in a bank account or similar, it will then be assessed against your age pension.

To keep receiving the full age pension, your assets need to be below $470,000 if you own your own home (not including the value of your home) or $722,000 if you are non-homeowners.

It will therefore depend on how much you and your wife have in super and other assets.

If a key objective is to retain the full age pension, then calculate how much super your wife can convert to pension without breaching the above limits and start a pension for that amount.

Alternatively, if you are already close to the above limits, your wife can leave funds in her super accumulation account and just take out ad-hoc lump sum withdrawals as required.

Note, once your wife attains age pension age her super will be assessed by Centrelink regardless of whether it is still in accumulation or pension.

Question 3

I have a stock portfolio in trust for my granddaughter. Would a capital gains tax issue arise when she turns 18 and the portfolio is transferred to her? 

Thanks, Michael

Hi Michael,

When you say ‘in trust’ do you mean an informal trust?  i.e. there is no formal trust structure.

Since an informal trust (Michael in trust for x) is the most common in these scenarios, I will assume so.

What happens in relation to CGT when the shares are transferred will depend on what has happened until now. For instance:

• Whose tax file number has been quoted on the purchase of the shares?
• Has anyone been recoding dividend payments from the shares on their tax return?

If it’s your tax file number but you haven’t been recording dividend payments, then the ATO’s matching software may ask for a please explain.

Ideally, when these types of investments are set up, the tax issues are planned so there are no surprises down the track.

I suggest obtaining some tax advice or contacting the ATO to ensure any tax obligations are clear.

Craig Sankey is a licensed financial adviser and head of Technical Services and Advice Enablement at Industry Fund Services.

Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.

Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives.