Question 1

I am 57, earning $300,000 a year with a super balance of $350,000. I have paid off my house and now have money accumulating, and I’m not sure what to do with it. Mostly because I’m not sure about the rules regarding putting more into my superannuation.

My goal is to have $1 million at retirement in my super fund. If I contribute $1000 per week I can easily meet this, but I don’t know what the ramifications are and don’t want to make a mistake. Any advice is much appreciated.

Firstly, although it’s good you have a target goal it might be more meaningful for you to flesh that out a bit.

Within the superannuation industry we always talk about “account balances” and so it’s no surprise you have come up with a lump sum target that is $1,000,000.

Instead, retirees find it more helpful to have a retirement income goal in mind. And then turn that into a SMART goal (Specific, Measurable, Achievable, Relevant, and Time-Bound).

For example, “I want to retire at age 65 with a yearly income of $70,000 that goes up each year with inflation and lasts 30 years”.

You can then use the Moneysmart retirement calculator and/or your super funds calculator to see how you are tracking. Good retirement calculators also factor in any potential age pension payments. With this in mind, you may find that you need more or less than the $1,000,000 you have initially identified.

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By the way, this exercise is what a financial adviser can typically assist with. If you need assistance or you’re thinking of seeing one, this will streamline the process.

Coming to your contributions question: In your situation, where you want to make ongoing contributions, there are two broad types of contributions you can make:

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• Salary sacrifice contributions: These are taken out pre-tax so they are very tax effective. Generally, high-income earners should look to maximise these contributions first. These fall into what is called ‘concessional contributions’. The annual cap (maximum amount) on concessional contributions is $30,000. Be aware that employer SG contributions also fall under concessional contributions and count towards this cap. Note: As your super balance is under $500,000 you may be able to use the ‘catch-up’ contributions. The best way to check is to login to MyGov, visit the Australian Taxation Office site and view your available amount.
• After-tax contributions: As the name implies, these are contributions made after you have paid income tax. These are referred to as ‘non-concessional contributions’. As they are not as tax effective, you have a larger annual amount of $120,000.

If you are looking at $1000 per week, then a maximum of salary sacrifice and after-tax contributions would probably be best. Speak with your super fund or financial adviser to help you optimise these amounts.

 Question 2

Can I sell a home and open a super account to put the money into?  I am 74 years of age and am not working.

Yes, you can make an after-tax non-concessional contribution of up to $360,000 if you do so before age 75.

Technically, you can still make the contribution up to 28 days after the end of the month you turn age 75. But beyond that, non-concessional contributions can no longer be made.

If you have owned the home more than 10 years you may also be eligible to make a ‘downsizer’ contribution to super. This is capped at $300,000 per person. And there is no maximum age limit (only a minimum – age 55).

Other conditions include:

• The contribution is an amount equal to all or part of the sale proceeds of a qualifying main residence, capped at $300,000 per person
• The main residence was owned by the individual, their spouse or former spouse for 10 years or more prior to the sale
• The contribution must be made to a complying superannuation fund within 90 days of the change of ownership
• The individual must not have previously made a downsizer contribution into super from the sale of another home.

Question 3 

Hi Craig,

My financial advisor recently flagged that my preserved (MSBS) and active (PSS) total superannuation balance will hit the $1.9-million cap soon.

What options are there to ensure I’m not paying the hefty excess contribution tax, given I can’t remove funds from either of these accounts until preservation age?

This is a complex area to navigate due to the possible impact on your pension, in addition to the tax implications you’ve already flagged. Because of this, I’d recommend you seek further financial advice before exceeding the $1.9 million cap.

Something to keep in mind is that the $1.9 million cap increases with inflation, in increments of $100,000 – while considering how close you are to the limit, you also need to consider how close you are to retirement.

I have also run this past CSC who manage your super funds and they advise that there are some options available for you to decrease or stop your non-concessional contributions; however these could have a detrimental impact on your final pension so they may not be in your best interest.

Salary sacrificing or spouse splitting are potential ways you could load up an accumulation account in preparation for splitting the cap. It’s important to note, though, these possibilities are dependent on your individual situation.

Some immediate steps are:

• Logging into your account and checking your statement at the CSC Navigator
• Gaining the full picture of your super balance by logging into mygov ATO
• Getting in touch with the Team at CSC for further scheme-specific guidance. Or calling the PSS scheme information on 1300 000 377.

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.