Retirees Superannuation Tax Hit, All You Need to Know

More than 700,000 Australians are paying an additional $650 in taxes annually when they don’t need to do it, according to the Super Members Council research. 

The Super Members Council CEO, Misha Schubert confirmed that providing basic advice to individuals on when the best suited time to switch accounts can save retirees from overpaying taxes and provide assistance to them to make more sensible financial decisions, as proposed in the Delivering Better Financial Outcomes (DBFO) package.

Retirees Superannuation Tax Hit

Tens of thousands of retirees may need to pay more tax on their superannuation because of a lack of guidance on switching it to the tax-free retirement phase, according to research disclosed by the Super Members Council (SMC). 

In Australia, when an individual reaches retirement age, they can transfer their superannuation from the accumulation phase to the retirement phase.The Super Members Council found that  700,000 Australians residents aged over 65 or those who were not working full-time still have super in an accumulation account. 

The accumulation phase usually starts when individuals are creating their super and comes with at least 15% tax on their earnings. It is compared to the retirement or pension phase, where retirees will be able to draw an income from their super fund or draw out their funds as a lump sum.

When retirees begin transferring super into a retirement phase account, the ATO ensures that investment earned amounts are not taxed. The research found that by setting up an accumulation account,  retirees would be paying an additional $650 in taxes on a yearly basis.

What can be the amount of super tax paid?

According to data gathered by specialist research firm Susan Bell Research, the SMC found that more than 700,000 retired Australians who are aged 65 or over and those who are no longer full-time working have an accumulation super account. 

It means that they need to pay thousands of dollars for an additional tax over their retirement. It is expected that for an Australian retiree who has $100,000 in an accumulation account rather than depositing it into a pension account, the amount of super tax paid can be $4500. 

This tax figure will be doubled to $9000 for those who have $200,000 in their accounts. According to the Australian Taxation Office (ATO), the average super balance for an individual in Australia aged between 65 to 69 needs to be at least $453,075, whereas for women with the same age need to have an average balance of $403,000.

What is the reason behind this?

The SMC stated that it was concerned that several older Australians had not been provided basic advice to convert their supers into the tax-free retirement phase. The Super Members Council CEO Misha Schubert, stated that not knowing much about super can lead to seniors making poor decisions like leaving accounts inactive and withdrawing funds without appropriate planning.

Making simple information and advice provided to more Australians is a big missing part of the retirement puzzle. According to the SMC, research found that thirty nine percent of retirees leaving money in the accumulation phase were doing so. It is because they don’t know what they need to do with it.

It is also reported that only 26% of current retirees make it clear that they have proper financial advice from their super fund. The report also disclosed that four in five Australians who are aged between 45 to 54 need basic advice but they are not able to afford it.

What is the Australian government going to do to resolve this issue?

The SMC chief executive Misha Schubert announced that  the Australian government’s financial advice reforms can provide assistance to remove this gap. In Australia, Labor’s “Delivering Better Financial Outcomes” package has been proposed but it is yet to be legislated. 

The coming financial advice reforms can make financial advice more affordable for all Australians. It will also allow super funds to better guide individuals at key stages of life with personalised prompts to assist them for retirement, the SMC said.

The package of reforms will provide an opportunity to the more than 2.5 million Australians on the runway to retirement to receive the high-quality information that they must have to plan wisely at a lower cost. We suggested that the government introduce legislation as soon as possible.