Are You Overpaying Tax on Your Super: This One Superannuation Change Can Save You $9,000 in Taxes

Many Australian retirees may be unknowingly paying extra taxes on their superannuation. Research suggests that a simple adjustment to their super accounts could save them thousands of dollars. However, a large number of retirees have yet to make this change due to a lack of awareness and financial guidance.

Why Retirees Are Paying More Tax Than Necessary

According to the Super Members Council (SMC), around 700,000 Australians over the age of 65 still have their super in an accumulation account instead of moving it to a retirement (pension) account. This mistake could lead to unnecessary tax payments throughout their retirement years.

For example:

• A retiree with $100,000 in an accumulation account may pay up to $4,500 in tax.
• Someone with $200,000 could end up paying $9,000 in tax.

Understanding the Accumulation and Pension Phases

Superannuation works in two phases:

1. Accumulation Phase:
   • This is when you are still working and adding money to your super.
   • Earnings from investments are taxed at 15%.
2. Pension (Retirement) Phase:
   • When you retire, you can transfer your super to a pension account.
   • Earnings on investments in this phase are completely tax-free.

Many retirees fail to move their super into a pension account, which means they continue paying the 15% tax on earnings unnecessarily.

Lack of Financial Guidance is a Major Problem

One of the key reasons why retirees are not switching to a pension account is a lack of awareness. Many people do not understand how superannuation works and do not seek professional financial advice.

• 39% of retirees who keep their money in accumulation accounts say they are unsure about what to do next.
• Only 26% of retirees have consulted their super fund for financial advice.
• 80% of Australians between the ages of 45 and 54 say they need financial advice but cannot afford it.

Misha Schubert, CEO of the Super Members Council, emphasizes that more people need access to simple and affordable financial advice. Without it, retirees could be losing thousands of dollars that could have been used for their daily expenses.

Government Plans to Improve Superannuation Guidance

The Australian government is working on reforms to help retirees make better financial decisions.

The “Delivering Better Financial Outcomes” package, proposed by the Labor government, aims to:

• Ensure all Australians have access to affordable financial advice.
• Allow super funds to provide more guidance at key life stages, like retirement.
• Improve the process of transitioning from an accumulation to a pension account.

If passed into law, this plan could help retirees save money and make better decisions about their superannuation.

How Retirees Can Reduce Their Tax Burden

If you are retired and have your super in an accumulation account, here’s what you can do:

1. Check Your Super Account Type
   • Log into your super fund’s website or call them to find out whether your super is in an accumulation or pension account.
2. Consider Moving to a Pension Account
   • Transferring your super to a pension account can eliminate the 15% tax on earnings.
3. Seek Professional Advice
   • If you’re unsure about making changes, consult a financial adviser or contact your super fund’s customer support. Many super funds offer free or low-cost advice.
4. Stay Updated on Superannuation Rules
   • Government policies around superannuation and retirement benefits change over time. Stay informed to make smart financial decisions.

Conclusion

Many Australian retirees are paying thousands of dollars in unnecessary taxes simply because they haven’t switched their super to a pension account. The government is working on reforms to provide better financial advice, but retirees should take proactive steps now.

By moving their super to the pension phase, they can maximize their retirement savings and enjoy a more comfortable financial future.

This article has been carefully fact-checked by our editorial team to ensure accuracy and eliminate any misleading information. We are committed to maintaining the highest standards of integrity in our content.