Superannuation tax : According to research by the Super Members Council, approximately 700,000 Australians are unnecessarily paying an additional $650 in taxes annually.
Hundreds of thousands of Australian retirees may be paying more tax than necessary due to a missed superannuation adjustment. Upon reaching retirement age, individuals can shift their superannuation from the ‘accumulation phase’ to the ‘retirement phase.’
New research from the Super Members Council reveals that around 700,000 Australians over 65, who are not working full-time, still hold their super in an accumulation account. In this phase, where super is still growing, earnings are subject to a 15% tax.
In contrast, the retirement or pension phase allows retirees to receive income from their super fund or withdraw it as a lump sum. According to the Australian Taxation Office (ATO), transferring super into a retirement phase account means investment earnings are not subject to tax.
The research found that retirees who keep their super in an accumulation account could be paying an additional $650 in taxes annually. For someone with an average retirement balance of $200,000 in an accumulation account, this could result in an extra $9,000 in super taxes over the course of their retirement.
While some individuals may intentionally delay transferring their funds for strategic reasons, the super advocacy group found that many were not making the switch due to a lack of knowledge or disengagement with their super.
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Super Members CEO Misha Schubert emphasized the importance of financial advice reforms in ensuring retirees can access quality guidance at an affordable cost. Many retirees, she noted, are missing out on essential advice about transitioning their super to the retirement phase.
“Lack of superannuation knowledge can lead to poor financial decisions, such as leaving accounts inactive or withdrawing funds without proper planning,” Schubert said.
“Providing clear, accessible information and advice to more Australians is a key missing piece of the retirement puzzle. The upcoming financial advice reforms will play a vital role in making guidance more affordable.”
What are the superannuation reforms?
In December, the federal government announced reforms aimed at making quality and affordable financial advice more accessible to Australians through their super funds.
The changes will introduce a new category of financial adviser to provide safe and straightforward guidance on essential topics like selecting an insurance policy or addressing basic retirement queries.
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Additionally, super funds will be allowed to offer timely “nudges” to consumers at key life stages when financial advice may be particularly beneficial, such as retirement.
Research from ASFA revealed that one in two Australians had never sought advice on retirement planning.
The government also plans to implement mandatory service standards for super funds, as they face increasing scrutiny over delays in processing death and disability payments.
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