Superannuation

Superannuation

The Australian Superannuation system has approximately $80 billion dollars invested in it.

We should learn about superannuation because we will be receiving the compulsory level of superannuation of 9% and it is likely to become your single largest asset.

The main advantages of Super Funds:

Tax Concessions

The main disadvantages of Super Funds:

Preservation Rules

Topic 1: Retirement Income

We have to consider the possible sources of retirement income for ourselves:

1. Family

2. Community Support

3. Keep Working

4. Compulsory Superannuation Charge

5. Voluntary Superannuation Contributions

1. Family

If we are lucky enough to gain an inheritance that can become a possible source of income. However, due to the ageing population and rising health care costs this is becoming unlikely and parents are likely to need all their savings for their own retirement income.

In many countries however, it is traditional for parents to be taken care of by their children in older ages.

However, in Australia this is very unlikely due to lower fertility rates of only 1.7 children per female and falling. Also, 24% of all Australian women will never have children.

In some countries however, there is legislation passed to ensure that children take care of their parents. In America children are required to provide for their parents health care costs. In India legislation is being passed such that there are financial incentives for looking after elder retired relatives.

2. Government

The government can provide assistance to the elderly directly or indirectly.

a) Social Security Payments

In the early days of Australian settlement charities were set up to provide support to the less privileged people. They would at times be given assistance by government authorities however, eventually they could not provide enough assistance due to the lack of resources.

Eventually, the government set up the old age pension system in the early 1990’s which required certain requirements to be met for eligibility:

пÑ"? Permanent Australian Residency

пÑ"? Good moral character

пÑ"? In financial need

пÑ"? Over 65 (males) over 60 (females)

Now however, there are a number of benefits available to older age people:

пÑ"? Disability Pension

пÑ"? Old Age Pension

пÑ"? Widows allowance

пÑ"? Service Pension

Age Pension

The old age pension is at $494.70 per fortnight, which translates to approximately $13000 pa. Couples however, get less than the singles rate.

To be eligible for the old age pension you are required to:

пÑ"? Be over 65 for males, Over 63 for females which is becoming 65.

пÑ"? Meet the residence requirements which require you to be an Permanent Australian citizen and have not been out of the country for more than 10 years continuously.

пÑ"? You must also meet the requirements of showing financial need which is done by:

o Incomes Test:

This test means that for every dollar you earn above $124 per fortnight you lose $0.40 cents in the fortnightly pension.

o Assets Test:

This test says that if you don’t own your own house and you have assets less than: $270 500 then you are eligible for the pension.

If you do own your own home and you have assets less than $157000 then you are eligible for the old age pension.

Note that your home is not counted as an asset in this test.

For every $1000 greater than the minimum values you lose $3 per fortnight in the pension amount.

Of these two tests the one that produces the lower result is chosen to be your old age pension amount.

Currently approximately 80% of the population above the eligible age receive some form of social security payments. For a lot of these people the age pension accounts for more than 90% of their income.

Rules: The introduction of the old age pension meant that people saw the opportunity to rort the system and become eligible for the old age pension when they shouldn’t have been.

Deeming Rules: These ensure that even if people put their money into an investment that earns no rate of interest it will be assumed to earn the market interest rate.

Gifting Rules: People can gift up to $10 000 but anything more than this will be deemed to be yours for 5 years.

Home Purchase: People may often purchase homes since they are not eligible under the assets test.

Spend it all quickly: People will often try to spend their money quickly so they become eligible for the pension however, the government has set up certain incentives that encourage not spending such as income stream products.

b) Indirect Government Payments:

These are provided by the government in the form of:

o Subsidised pharmacy products

o Subsidised health costs

o Tax benefits