Question 1

• Hi Craig, I just read an article saying people over 65 are missing out on super because they are still in accumulation phase. I assume this is because it doesn’t matter if you are working or not, the growth in value of the super will be taxed at 15 per cent. Following on from this, is it possible to have one super account in pension mode and a separate super account in accumulation phase? Thanks, Sue

Hi Sue,

Yes, you are correct. Although I wouldn’t say missing out on super, I would say missing out on getting better after-tax returns (which I suppose does lead to a bigger super balance).

When funds are in super (accumulation) the tax on earnings is 15 per cent (may be a little less if the super fund can use tax credits).

However, when they are converted to a pension all earnings are tax free. This means that if you invest in the same assets (like a balanced fund) then the pension fund may generate a return 15 per cent higher than the accumulation equivalent as it doesn’t pay tax.

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As an example, a 7 per cent return in pension stays at 7 per cent. Whereas a super accumulation account has to pay tax on the 7 per cent, so therefore may be only able to provide a net return of 5.95 per cent (7 per cent less 15 per cent).

And yes, there is no problem having both a pension account and keeping a regular super account open if you want to keep contributing to super.

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You do need to also take into account that with a pension, you are required to draw the minimum income from your pension account annually.

Question 2

• I am 63, fully retired and currently live off the payments from superannuation in the form of an account-based pension. The super fund has recently been found to have made misleading claims by ASIC and as a result I am motivated to change funds. Is it possible to change the superannuation fund providing the account-based pension? Thanks for the helpful information.

Yes, it certainly is. Not only can you change super funds, but you can also change the provider of your account-based pension.

Unfortunately, there is not as much information around on comparing account-based pension products as there is with superannuation products.

However, the investment options offered by super funds are very similar, or exactly the same, to what is offered by the same funds in their account based pensions.

Your new fund of choice would be more than happy to help you set up and transfer the account-based pension over to them.

Question 3

• I am 70 years old, fully retired and receiving part age pension as a couple and pension from my super income account. Sold my rental property to get rid mortgage loan on it. Capital gain is minimal, around $30,000. Can I make a concessional contribution to my super as I am thinking to put to super the excess money from selling that rental property. My income account is $195,000.

You can contribute the funds to super as an after-tax, non-concessional contribution.

However, as you are over 67 you have to meet a work test in order to claim a tax deduction on the contribution (which would make them concessional contributions).

To satisfy the work test, you must work at least 40 hours during a consecutive 30-day period before the end of the financial year.

If the gross capital gain is $30K, and if you have held the investment property longer than 12 months, then the net gain may only be $15K.

If your only other income is the age pension, then the resulting actual capital gains tax may be minimal. However, you should speak with your tax adviser about this.

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.