Wealth management through super: a how-to

By Lucy Dean

December 19 2017
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This year’s superannuation changes present a number of opportunities but also challenges, so it’s important that workers understand their superannuation, a wealth manager has said.

Dixon Advisory’s associate director, Daniel Gumley said there are ways to improve superannuation balances, regardless of the member’s stage of life.

With this in mind, he highlighted the key considerations for each stage of life:

1. ‘If you’re still working or earning any income, look for avenues to add to super’

“Even in this new super world, it remains highly attractive to build wealth through super where a maximum tax rate of 15 per cent applies to your earnings,” Mr Gumley explained.

“With lower contribution limits and the inability to make non-concessional contributions once your balance reaches $1.6 million, if you’re still accumulating your wealth, you will need to be more strategic in your approach to build a strong level of super over the longer term.”

He said people should consider asking an adviser about how to understand their cash flow, savings capacity and strategies to allocate the excess.

Continuing, he said advisers can help clients get the structure “right from the start”, and help them equalise their super balances with their spouse.

He said: “We often encourage couples to consider evenly splitting their super, and new rules, such as the $1.6 million cap on tax-free pensions that apply on an individual basis are a great example of why.

“There are complexities in achieving equal balances due to several factors including age, retirement status, tax and family considerations. Working through these with your financial adviser will help you to structure your investments tax-effectively for the long term.”

2. ‘Encourage your children to consider their financial future now’

While it’s important for younger people to understand saving and begin planning, Mr Gumley acknowledged that it can be difficult to balance goals like home ownership with longer-term goals like retirement income.

Additionally: “The super reforms afford less flexibility to ‘top-up’ super savings later in life, which may lead to hard-earned savings accumulating in a less concessional tax environment.”

He said if families want to transfer wealth between generations, they may benefit from strategies that assist adult children in building their super while supporting ongoing commitments from income.

He said: “This can save your children some tax immediately and ensure assets accumulate in super’s tax-effective environment.

“It’s also vital to help them establish the right structures from the start – this may be as simple as consolidating super to avoid multiple sets of fees, or helping your children build a good level of super where they can take control through their own supported SMSF.”

An effective wealth-transfer plan should promote financial literacy, he argued, noting that open conversations around estate planning strategies can protect wealth in the longer term.

3. ‘If you’re in retirement, keep a close eye on your balance’

“When you hit the retirement pension phase, you are now subject to a transfer balance cap of $1.6 million. This means you need to keep a close eye on your transfer balance account to optimise the tax-free amount you invest – both now and into the future,” Mr Gumley said.

Continuing, he advised that the tax office keeps track of this through a debits and credits system.

“Common credits include your retirement pension balance at 30 June 2017 and any future monies moved into the pension phase. Common debits — which increase your available cap space — are super fund rollovers or lump sum withdrawals.”

The associate director said future withdrawals in excess of the mandatory age-based minimum should be “carefully allocated” and factor in members’ transfer balance accounts, taxation and social security.

Further, he warned that while lump sum and pension withdrawals can both be viable options, members can be “adversely” affected by failing to choose the most appropriate withdrawal method.

“Careful planning is important, especially in regard to succession planning to maximise the tax-free amount of your pension that may be inherited by your spouse.”

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