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Ask the Expert: Understanding bring-forward rules, and when two super accounts can work better

Financial adviser Craig Sankey answers your superannuation and other finance questions each week, and today looks at the nitty-gritty of super rules and how you can benefit from knowing them. 

Apr 03, 2024, updated Apr 03, 2024
Photo: Antoine Dautry, Unsplash

Photo: Antoine Dautry, Unsplash

Question 1

My financial adviser has told me to set up a second superannuation fund and transfer some money to a better-performing growth option there. Is there merit in having two superannuation funds?

The traditional thinking is that you should only hold one super fund to cut down on fees and for ease of administration.

However, in some circumstances having two super funds does make sense.

Firstly, the major fee component for most super funds is percentage based. That is, they charge a percentage of your account balance, say 0.75 per cent.

And they might also charge a small admin fee of say $1.50. So if you had two funds that charged like the example I have given, you would only be paying an additional $78 per year ($1.50 x 52).

Why would you have two funds? 

One reason is that you may want to hold onto existing insurance with your current fund, either because it’s a very good policy and/or you have health conditions that would prevent you from obtaining a new insurance policy.

The insurance may be good, but the investments are performing poorly. In this instance you could leave a small balance in your existing fund to cover insurance premiums and move the remainder to a high-performing fund.

Conversely, if you do not need additional insurance and you have two super funds, make sure you cancel one funds insurance so you are not paying for two sets of premiums, this is where it can get very expensive.

Financial advisers do have some other strategies as to why having two super funds makes sense.

This includes to isolate different tax components within different funds or having a separate account for First Home Super Saver Scheme contributions.

There is nothing wrong with having two super accounts as long as it’s part of a clear strategy and the additional fees are minimal.

Question 2

How is a passive income (super/retirement) accounted for in the single person’s asset limit of $656,500?  Is it the amount you receive annually, or the total amount? Are overseas retirement accounts included?

Once you reach age pension age your worldwide assets are included for the age pension assessment.

Under the income test, all financial assets are ‘deemed’ to receive a set return, regardless of how much you are receiving or how much they are earning.

For example, bank accounts, shares, managed funds, super, account-based pensions etc. are added together and assumed to earn a certain return. Centrelink don’t care about the actual return or how much you may be drawing from them.

There are some assets where deeming does not apply.

This includes an investment property, where net rent would be assessed under the income test.

Another asset that is not deemed is a lifetime pension. Instead, 60 per cent of the income payments you receive are assessed under the income test.

Question 3

We hope to clear around $600,000 for the sale of my partner’s three-bedroom house in southern NSW. It has been her place of residence for 16 years. We are moving to my two-bedroom apartment in Melbourne. We hope to get as much of the sale proceeds as possible into her super. (She turns 60 in December and has about $100,000 in super). Can we use the bring-forward arrangements for $300,000 over three years as well as the downsizer arrangement for $300,000, and thereby get all $600,000 into her super?  

Yes. Your partner seems to meet the downsizer eligibility considerations in that she is at least 55 and has held her home for more than 10 years.

Therefore, she can make a downsizer contribution to super of up to $300,000.

As the downsizer contribution does not count toward normal contribution caps, yes, she can also make a non-concessional (after-tax contribution) to super.

The annual cap is normally $110,000 but as you have alluded to, you can use the bring-forward rules and make a non-concessional contribution of up to $330,000 in one go. Although she could not then make another non-concessional contribution for three years.

The non-concessional cap is being increased to $120,000 ($360,000 under the bring-forward rule) as at July 1, 2024, therefore you should consider this in your planning.

Your partner should contact a financial adviser or speak to their super fund to confirm her eligibility for these contributions.

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.

This column also appears in our sister publication The New Daily, which is owned by Industry Super Holdings.

 

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