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Ask the Expert: Super is designed to work with you – here’s how to fine-tune it

Financial adviser Craig Sankey answers your superannuation and other finance questions each week, and today reminds everyone that once you turn 75 there are only a couple of options to get money into super.

May 08, 2024, updated May 08, 2024
Photo: TND

Photo: TND

Question 1

I am with QSuper and their financial advisers tell me that my question is ‘out of scope’ for them. I currently have a Defined Benefit superannuation balance of $710,000. I will be retiring in eight years. As defined benefit is formula based, I can calculate my balance at retirement will be $1,100,645 (not adjusted for today’s dollars). This is based on increase wage of 3 per cent next year as this has been agreed upon and then 2.5 per cent until retirement. 

I know Defined Benefit is a great account but it is dependent upon moving up the ranks. Having done calculations to the best of my ability I am getting the distinct feeling that by moving to QSuper’s accumulation account I would be at least $150,000 better off at the end of the next eight years. I am finding it hard to compare as all the accumulation account calculators I can find online are adjusted for CPI and my defined figure is not. I know nobody can predict the markets, but are you able to tell me if an accumulation account with medium risk would in theory give me a better return than I will get with a Defined Benefit account? 

Firstly, let me outline the difference between accumulation and defined benefit funds.

Accumulation funds “accumulate” by adding in contributions from your employer and yourself, plus all investment earnings.

Your investments within an accumulation fund will have a large bearing on how big your super grows. Most people have an accumulation fund.

Conversely, your balance in a defined benefit fund is determined by a set formula. The formula is normally based on your average salary over the past two to three years, your contribution rate and how long you have been in the fund.

These funds are typically only offered by government and corporate funds, and many are now closed to new members.

At a very high level, defined benefit funds do suit those with a long membership and whose average salary is increasing.

Importantly, they also suit members who don’t want to have exposure to ‘market risk’, i.e. they don’t want their balance going up and down due to market performance.

Concerning you comparing funds, in the accumulation calculations you are using there may be an option to reduce CPI to zero, so as to match your DB calculation.

However, moving out of a defined benefit fund is an important decision and one that would be irreversible, therefore I would strongly recommend seeking advice. I have spoken to Australian Retirement Trust, and it has provided the following information:

Australian Retirement Trust is able to provide intrafund advice (no additional cost to members) to our QSuper members about a range of advice topics through their relationship with QInvest.

For members seeking assistance about the specific advice topic of deciding if they should move from their Defined Benefit Account to an Accumulation Account, Australian Retirement Trust has a panel of accredited external advisers who are ready and available to assist.

Our members are encouraged to contact us and ask for a referral to speak with one of these advisers. They will consider individual circumstances and provide appropriate advice to ensure members can get their super on track and retire well with confidence.

Question 2

I am drawing down a pension from my industry super fund and am 62 years old. I understand I do not have to file a tax return as this is tax free? Secondly, my wife earns about $42K pa. Does she need to report my superannuation pension as spouse income? If so, it seems like they may be de facto taxing my super. Cheers, Kevin.

Good news for you, Kevin, is that not only are your pension payments tax free, they are not regarded as assessable income.

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Therefore, they do not appear on your tax return, so unless you have other taxable income, no tax return is required.

Similarly, as your pension payments are not assessable, they also do not need to be recorded on your spouse’s tax return when she states your income.

A proviso to the above is that if you have an untaxed fund, then any untaxed element may be taxed.

These funds are not very common but were historically offered by old governments and some corporate super funds.

Question 3

Is there any way I can continue to contribute to super once I reach 75. I have retired from my permanent position and draw down a super pension, but from time to time get consultancy work and would like this to go into a super accumulation account which I still have.

Once you turn 75, there are only a couple of options to get money into super.

Firstly, there is employer SG contributions, which can continue at any age.

If you are a contractor and are paid for your labour, then the business should be paying you superannuation. You may want to speak with your accountant to ensure this is the case.

The only other way to get money into super post age 75 is via a downsizer contribution if you sell your home.

There is a minimum age of 55, but there is no maximum age.

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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