Topic 9 Retirement Planning

Question 1

Preservation standards

• In return for the taxation concessions provided for ___________, any contributions plus earnings on those contributions are preserved in the fund until a condition of release has been met
• If superannuation could be paid from a fund prior to a person’s permanent retirement from the workforce then its true aim would not be _________.

Answer 1

Preservation standards

• In return for the taxation concessions provided for superannuation, any contributions plus earnings on those contributions are preserved in the fund until a condition of release has been met
• If superannuation could be paid from a fund prior to a person’s permanent retirement from the workforce then its true aim would not be achieved

Question 2

Conditions of release

• The conditions of release include:
• permanently retiring after reaching preservation age (retirement prior to a person reaching age ____ is working less than ____hours in each week)
• leaving employment after reaching the age of _____ years
• reaching the age of ____ years
• commencing transition to retirement after reaching preservation age (benefits can only be drawn as income streams)

Answer 2

Conditions of release

• The conditions of release include:
• permanently retiring after reaching preservation age (retirement prior to a person reaching age 65 is working less than 10 hours in each week)
• leaving employment after reaching the age of 60 years
• reaching the age of 65 years
• commencing transition to retirement after reaching preservation age (benefits can only be drawn as income streams)

Question 3

Preservation ages

Date of birth Preservation age

• Before July 1960 55
• 1 July 1960 – 30 June 1961 56
• 1 July 1961 – 30 June 1962 57
• 1 July 1962 – 30 June 1963 58
• 1 July 1963 – 30 June 1964 59
• After 30 June 1964 ____

Answer 3

Preservation ages

Date of birth Preservation age

• Before July 1960 55
• 1 July 1960 – 30 June 1961 56
• 1 July 1961 – 30 June 1962 57
• 1 July 1962 – 30 June 1963 58
• 1 July 1963 – 30 June 1964 59
• After 30 June 1964 60

Question 4

Types of benefit

• Accumulation accounts - balances increase with positive investment returns as well as contributions
• investment risk is borne by the _______
• Defined benefit funds – contributions are made by an employer into a pooled fund
• ultimate benefit is defined by a formula
• risk is usually borne by the ________

Answer 4

Types of benefit

• Accumulation accounts - balances increase with positive investment returns as well as contributions
• investment risk is borne by the individual
• Defined benefit funds – contributions are made by an employer into a pooled fund
• ultimate benefit is defined by a formula
• risk is usually borne by the provider

Question 5

Superannuation benefits – tax implications

• If benefits are drawn from a __________\_, they will be tax free if the recipient reached the age of ____ years
• taxed source – tax was paid on contributions and returns
• Tax will need to be paid on benefits if the recipient is under the age of ___years and benefits are paid from a taxable component - the tax rate will depend on the age of the recipient and whether the benefits are paid as lump sums or income streams
• taxable component – contributions tax was paid on contributions
• If benefits are drawn from a ___________\_ benefits will be tax free for all recipients irrespective of age
• tax-free component is made up mainly of _________________, _______________ and __________________

Answer 5

Superannuation benefits – tax implications

• If benefits are drawn from a taxed source, they will be tax free if the recipient reached the age of 60 years
• taxed source – tax was paid on contributions and returns
• Tax will need to be paid on benefits if the recipient is under the age of 60 years and benefits are paid from a taxable component - the tax rate will depend on the age of the recipient and whether the benefits are paid as lump sums or income streams
• taxable component – contributions tax was paid on contributions
• If benefits are drawn from a tax-free component, benefits will be tax free for all recipients irrespective of age
• tax-free component is made up mainly of non-concessional (after-tax) contributions, government co-contributions and funds accumulated prior to 1983

Question 6

Superannuation benefits for people aged at or above preservation age and under 60 years - types and tax treatment

• If benefits are paid as lump sums from a taxed source - no tax is applicable up to the threshold of $_________ (for 2017/18), and any amount over the threshold will be taxed at _____% plus ___% of Medicare levy
• If benefits are paid as income streams from a taxed source – income streams are taxed at marginal tax rates of the recipient less ___% tax offset

Answer 6

Superannuation benefits for people aged at or above preservation age and under 60 years - types and tax treatment

• If benefits are paid as lump sums from a taxed source - no tax is applicable up to the threshold of $200,000 (for 2017/18), and any amount over the threshold will be taxed at 15% plus 2% of Medicare levy
• If benefits are paid as income streams from a taxed source – income streams are taxed at marginal tax rates of the recipient less 15% tax offset

Question 7

Annuity and account-based pensions

An annuity is a financial product that guarantees a fixed annual income, usually in the form of a series of payments throughout the year

• they can be for a fixed term or lifetime annuities
• they must be bought from insurance companies

Account-based pensions (income streams) are paid from the superannuation account

• an individual who commences an account based pension is required to draw at least once a year _____________ percentage of their account balance which is calculated at the beginning of each year
• the minimum pension amount is __% for anyone under the age of 65, __% for individuals aged ______

Answer 7

Annuity and account-based pensions

• An annuity is a financial product that guarantees a fixed annual income, usually in the form of a series of payments throughout the year
• they can be for a fixed term or lifetime annuities
• they must be bought from insurance companies

Account-based pensions (income streams) are paid from the superannuation account

• an individual who commences an account based pension is required to draw at least once a year a minimum percentage of their account balance which is calculated at the beginning of each year
• the minimum pension amount is 4% for anyone under the age of 65, 5% for individuals aged 65-74

Question 8

Transition to retirement Income Streams (TRIS)

• TRIS enable individuals who reached preservation age to access their super while they are still _________
• TRIS is only available for members of accumulation, not defined benefit, superannuation fund
• under the TRIS, benefits can only be drawn as _________ subject to a yearly minimum (see the previous slide) and maximum of up to ___% of the total fund value drawdown amounts
• a frequency of withdrawals must be at least ______ a year

Answer 8

Transition to retirement Income Streams (TRIS)

• TRIS enable individuals who reached preservation age to access their super while they are still working
• TRIS is only available for members of accumulation, not defined benefit, superannuation fund
• under the TRIS, benefits can only be drawn as pensions subject to a yearly minimum (see the previous slide) and maximum of up to 10% of the total fund value drawdown amounts
• a frequency of withdrawals must be at least once a year

Question 9

Tax benefits of TRIS

• Income streams are tax free for people aged 60 years and over (from a taxed source)
• Income streams drawn by those aged at or above preservation age and under 60 years will be taxed at the recipient’s MTR less 15% rebate
• Example:

Mark, aged 60, commences a TRIP. Mark will draw $15,000 annually from his superannuation fund to meet the minimum requirement payment. He will also salary sacrifice $15,000 to his fund in addition to his employer’s contribution of 9.5%. His superannuation fund has generated $25,000 in returns (dividends) this year. Mark’s Marginal Tax Rate (MTR) is 34.5%.

• Calculate the tax savings for Mark

Question 10

Estate planning: who is a dependant

• Under the SIS Act, ‘superannuation dependants’ to whom the fund trustee can _________ are:
• legal or de facto spouse (but not a former spouse)
• child (of any age)
• person whom the trustee considers to be financially dependent on the deceased at the time of his or her death
• interdependants - an independency relationship exists where two persons have personal relationship, and live together, where one or both provides for the financial and domestic support, and care of the other
• Two persons are considered to be also in an __________ even if they do not satisfy all of the above conditions, because one of them suffers from a physical, mental or psychiatric disability

Answer 10

Estate planning: who is a dependant

• Under the SIS Act, ‘superannuation dependants’ to whom the fund trustee can _pay death benefit_s are:
• legal or de facto spouse (but not a former spouse)
• child (of any age)
• person whom the trustee considers to be financially dependent on the deceased at the time of his or her death
• interdependants - an independency relationship exists where two persons have personal relationship, and live together, where one or both provides for the financial and domestic support, and care of the other
• Two persons are considered to be also in an independency relationship even if they do not satisfy all of the above conditions, because one of them suffers from a physical, mental or psychiatric disability

Question 11

Estate planning: death benefit nominations

A non-binding death benefit nomination is not binding on the trustee of a superannuation fund, however, the trustee may take the member’s wishes into consideration when making a decision as to who to pay the benefit to

A binding (lapsing) death benefit nomination, usually valid for three years, is binding on the trustee to pay the death benefit to the nominated beneficiary, as long as they are eligible dependants at the time of the member’s death, or to the deceased legal personal representative

A non-lapsing binding death benefit nomination does not expire and is also binding on the trustee to pay the benefits to the nominated beneficiary, or the deceased legal personal representative

http://www.bridges.com.au/pdf_flyers/ed_flyers/superannuation/what_is_a_binding_death_benefit_nomination

Answer 11

Estate planning: death benefit nominations

A non-binding death benefit nomination is not binding on the trustee of a superannuation fund, however, the trustee may take the member’s wishes into consideration when making a decision as to who to pay the benefit to

A binding (lapsing) death benefit nomination, usually valid for three years, is binding on the trustee to pay the death benefit to the nominated beneficiary, as long as they are eligible dependants at the time of the member’s death, or to the deceased legal personal representative

A non-lapsing binding death benefit nomination does not expire and is also binding on the trustee to pay the benefits to the nominated beneficiary, or the deceased legal personal representative