What you need to know about super if you are over 60 and still working

If you have turned 60 you are probably wishing you could turn the clock back a few years but when it comes to super, its time to celebrate.

The government has provided some of the most favourable tax concessions for people who have turned 60 when it comes to superannuation and you should take advantage of it to boost your super before you retire.

The single most important aspect to understand when you turn 60 is that you can use your super tax-free. That means zero tax. What ever you are allowed to use from your super is not assessable income which means you do not report it in your tax return.

So, if you are still working at 60 it probably means you love your work or perhaps your nest egg is not big enough yet to retire on.

If you are still working, you should be looking at maximising your contributions to super. From 1 July 2012 you can contribute a maximum of $25,000 p.a. without attracting a higher rate of tax. This includes any employer contributions. Assuming you need to replace the lost income you sacrifice into super then this is where your tax free income from super takes over. Effectively, what you are doing is replacing a part of your taxable income with a tax-free income from super.

If you have never changed jobs since turning 60 then you can access a maximum amount of 10% of your account balance each financial year you are under 65 and still working. This is called a Transition to Retirement Pension (TTRP) and is currently available to everyone who is still working and aged 55-65.

Once you turn 60 you have the added benefit of being able to access all of your super if you change jobs. The government call this 'termination of gainful employment' and it literally means you just need to terminate any gainful employment to gain access to all of your super. This could include retirement, changing jobs or terminating a second part-time job you may have.

If you can access all of your super then this means you are not limited to just 10% of your account balance.

The other added benefit of starting a TTRP or normal pension is that when you move your funds into a pension account there is no tax on the investment earnings. Let's say you have a super balance of $300,000 that makes a return of 8% for the year. This would equate to $24,000 in investment earnings and tax of $3,600 at 15%. When you move your funds into a pension you normally have the same investment options available but the main difference is no tax.

That is a worthwhile saving. Just make sure you check what admin fees your super fund charges for commencing and maintaining a pension account. If your super fund balance is under $100,000 or the investment return is low then your tax benefit is reduced.

Even if you are in the fortunate position of being able to sacrifice up to the full amount of $25,000 each year and do not need to draw an income from your super you should still consider moving your funds into a pension account. The savings in tax on the investment earnings alone could be worth the exercise.

An easy test to apply if this would provide a tax saving is to find out what the admin fees are on your fund for a pension account. Divide this figure by your account balance and this is what you need to make as an investment return to break even. For example, let's say you have $300,000 and your fund charges $400 per year for a pension account plus a membership fee of $52. This equates to approx .15%. If your average return is 8% you will be saving approximately $3,148 in tax.

If however, you only have $50,000 in super with the same fees then it equates to .9%. You should still be well in front but understand the relationship between the fees, investment returns and your account balance before making a decision. The only drawback if you do not actually need any more income from super is that you must draw a minimum of 4% (3% for 2012/2013) of your account balance each year to satisfy the government's requirements of operating a pension.

What you can do in this situation is elect to draw the required minimum as an annual payment and then re-contribute the amount back to super tax-free. Your tax-free contribution cap limit is $150,000 per year and is not affected by your employer or salary sacrifice contributions unless you exceed $25,000 in a year.


Rob Bourne has been involved in the financial services industry for over 35 years. As a practising financial adviser he focuses on the need for practical and down to earth financial education. The aim is to educate people through financial education so they can take control of their own financial future. Visit Rob's website here for more information on business opportunities, investing and financial education or the complete guide to superannuation a...

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