The detailed rule changes are complex and most people would benefit from professional advice. People should talk to their advisers and review their overall position, their plans and the lifestyle they want to lead after work. This extends to estate planning and the role philanthropy will play in their retirement and as part of their legacy.
The bottom line is that super will continue to be the most tax effective savings vehicle people can invest in for retirement. In the accumulation phase most contributions receive generous tax concessions and once inside the fund the investment assets are taxed at just 15 cents in the dollar or less.
In the retirement phase it's even better, with the fund paying absolutely no tax and the retiree paying no tax on any income they draw from age 60. The upcoming changes do not affect these great tax benefits. What they do is limit the extent that people can take advantage of them.
In the future, those with considerable wealth or on high incomes may need to hold more assets outside of superannuation which will affect their tax planning. Philanthropic giving obviously attracts its own tax benefits as contributions are tax deductible and any registered fund pays no tax on its earnings or disbursements.
A fulfilling retirement
Preparing for a fulfilling retirement is about much more than just getting your financial affairs in order.
When we're talking about super and planning for retirement, we're also talking about what we want to achieve for the rest of our lives and the legacy we want to leave, for our family, and for our community.
We know that retirement planning is the trigger for people to start thinking about philanthropy. For many Australians who have worked hard to build their assets over a lifetime, engaging in philanthropy is an opportunity to see that wealth achieve something potentially significant for their community. It can be an enormously rewarding thing to engage with and to have their families get involved with, too.
Tax benefits mean more money can be put to work for chosen causes
There are a number of ways to get involved in philanthropy and it’s not just limited to those of significant wealth. Today, those interested in philanthropy can structure their giving in a dedicated endowment or trust with an initial donation of $20,000.
The point of establishing an endowment or trust is to generate a sustainable future income stream for the causes you believe in. The tax benefits available mean that more money can be put to work for their chosen causes. In fact, by including tax-deductible donations to their endowments as part of tax planning, many of our clients are able to reduce their tax liabilities while providing more funding towards the causes they’re passionate about.
The changes to super are the perfect moment in time for individuals to consider whether philanthropy is something they wish to engage in.
The changes to super taking place mean that a lot of people will be sitting down with their trusted advisers to consider what they need to support their lifestyle in retirement. It presents as a wonderful opportunity to raise the prospect of philanthropy as part of a future tax strategy, or as something they would like to explore doing more of. For those individuals that are concerned about having enough money in retirement there is also the option of considering gifting via their estate.
Colin Lewis, head of strategic advice & Caitriona Fay, national manager of philanthropy and non-profit services, Perpetual