You can now opt-out of super guarantee as a high income earner

If you’ve unintentionally been going over your superannuation concessional contributions cap in past years, you may not have to worry about it from now on. As of 1 January 2020, eligible individuals with multiple jobs can apply to opt-out of receiving super guarantee (SG) from some of their employers.

You may be eligible to apply if you:

• Have more than one employer.
• Expect that your employers’ mandatory concessional super contributions will exceed your concessional contributions cap for a financial year.

Employees who are eligible can apply for the super guarantee shortfall exemption certificate when they complete the Super guarantee opt-out for high income earners with multiple employers form (NAT 75067).

When you opt-out of SG contributions, you must still receive SGC from at least one employer. If other employers agree to use the SG exemption, then they may provide an alternative remuneration package instead, as to not be disadvantaged. However, the exemption certificate:

• Does not restrict the employer from making super contributions on behalf of the employee.
• Does not change the employer’s obligations or an employer’s agreement with their super fund.
• Cannot be varied or revoked once issued.

Taking a super pension

Once you have met your preservation age (between 55 and 60 depending on when you were born), you can choose to take a super pension. There are six main types of super pension:

• Account-based pension: this is the most common type of pension. It is a regular income stream bought with money from your super when you retire.
• Transition to retirement pension (TTR): you can use this pension if you have reached your preservation age but are below 65 years old and still working,
• Defined benefit fund: with this pension, you are paid a guaranteed income stream for life, however, it is not commonly used.
• Annuities: this is a series of payments you receive at fixed intervals for a defined period or the remainder of your life. Annuity payments are purchased with a lump sum.
• Reversionary pension: this is an income stream you set up with your superannuation that automatically reverts to someone else (generally your partner) when you die.
• Death benefit pension: this is where your dependents receive your death benefits as a pension when you die. This is only available from some super funds.

The standard conditions of release for super pension withdrawals are:

• Retirement.
• Turning 65 years old.
• Beginning a transition to a retirement income stream.
• Ceasing an employment arrangement after you turn 60, regardless of if you get a different job.
• Becoming permanently incapacitated.
• Being diagnosed with a terminal medical condition.

The amount you withdraw can have an impact on any Age Pension entitlements you have, so be aware of these implications when deciding to withdraw an amount. You should also be aware of the transfer balance cap of $1.6 million that you’re allowed to move to an account-based pension. For super pension income streams, you generally need to transfer funds from your accumulation account to your retirement account for your pension.

When a trustee goes bankrupt…

SMSF members need to be aware of the rules that govern their fund, including what to do when one member becomes bankrupt.

A requirement of an SMSF is that each individual trustee of the SMSF must be a member of the SMSF. In the case of corporate trustees, every member must be a director. This means all members are connected and held accountable for one another. If one member enters bankruptcy, they will be categorised by the ATO as a “disqualified person”, meaning they can no longer act as trustee of the SMSF.

Where a disqualified person continues to act as an SMSF trustee or director, they will be committing an offence that is subject to criminal and civil penalties. The ATO provides a six-month grace period to allow a restructure of the SMSF so that it either meets the basic conditions required or can be rolled over into an industry fund. During the six-month grace period, the ATO requires:

• The bankrupt to remove themselves as trustee.
• The bankrupt to inform the ATO in writing.
• To be notified within 28 days if there is a change in trustee.
• The bankrupt to notify ASIC of the resignation as a director (if the SMSF is run by a corporate trustee).

New SMSF alert system

The ATO has introduced a new method of updating SMSF trustees of changes to their fund. From 3 February 2020, email and/or text message alert will be sent out when there are changes in the SMSF, such as;

• Financial institution account details.
• Electronic service address (ESA).
• Authorised contact.
• Members.

If you receive an alert and are not aware of changes being made to your SMSF, you should contact the other trustees or directors of the corporate trustee of your SMSF and any other representatives authorised to make changes to your SMSF, such as your tax agent.

The ATO messages will never ask you to reply by text or email or to provide personal information, such as your tax file number (TFN), your personal bank account number or BSB.

The system was expected to start back in November 2019 but was delayed due to technical difficulties. The process has now been confirmed to be working as intended.

What happens to your super in a divorce? 

Divorce or separation can be emotionally draining and stressful as it is, but the legal and financial responsibilities you also need to think about add an extra burden to dealing with the spit. One key area that needs to be considered to protect your financial future is your superannuation and what happens to it after your divorce.

The superannuation splitting law treats superannuation as a different type of property. This means that like any other asset it can be divided between partners who were in a marriage or de facto relationships either through:

• A formal written agreement where both parties sign a certificate confirming that independent legal advice about the agreement has been provided.
• Seeking Consent Orders to split the superannuation.
• Seeking a court order to split the superannuation in the event you cannot reach an agreement.

Splitting the super does not automatically give you a cash asset as it is still subject to superannuation laws.

There are three main options for dealing with your super in a split:

• A payment split: this is the most common way of dealing with super at the end of a relationship. If you are not yet eligible to withdraw your super, the benefit will be split whilst remaining in the super system. If you have retired or are eligible to withdraw your super, your split can be done as a payment.
• Payment flag: you can defer your decision if you want to wait for a specific event to occur, such as retirement or the maturation of an investment. Flagging allows you to protect the interest in your super fund and prevents the super fund from making a payment out of the super account until the flag is lifted.
• No split or flag: this is when you choose to treat super as a financial asset instead of splitting or flagging the super. The super is then a relationship asset that can be divided between the parties. This option is often used by de facto relationships in Western Australia as their super cannot be split, making it their only legal option.

Updates to the unclaimed superannuation money protocol

The Superannuation (Unclaimed Money and Lost Members) Act 1999 (SUMLMA), more commonly known as the unclaimed superannuation money protocol, has been updated recently to provide a clearer structure going forward.

SUMLMA provides guidance on in relation to unclaimed money, lost member accounts, superannuation accounts of former temporary residents and their associated reporting and payment obligations. The update has now added content on inactive low balance accounts.

The act now clearly defines what is an inactive low-balance account, how statements and payments work, the registering of lost members and various rules for special cases.

It is important to note that the information in the protocol does not apply to super providers that are trustees of a state or territory public sector super scheme, in which:

• The state or territory has laws requiring the reporting and payment of unclaimed super money to the state or territory government. Or;
• The state or territory public sector super scheme complies with relevant state or territory laws.

The protocol provides administrative guidance only and should not be taken as a replacement for the law or technical reporting specifications.

SMSF schemes for illegal access of super

The ATO has issued a warning for Australians to be aware of scheme promoters that promise to allow you to withdraw your superannuation early, and illegally.

Individuals can legally withdraw super when they turn 65, even when they haven’t retired, are at their preservation age and retire, or under the transition to retirement rules while continuing to work. Super can only be accessed early under circumstances that mainly relate to specific medical conditions or severe financial hardship.

The ATO is taking action to shut down promoters who tell people they can gain access to their super before they are eligible to by setting up a self-managed super fund (SMSF), which is illegal. There has been a number of schemes that encourage individuals to channel money inappropriately and deliberately to avoid paying tax.

Penalties for involvement in illegal super schemes include fines up to $420,000 for individuals and up to $1.1 million for corporate trustees. An individual may also lose their right to be a trustee of their superannuation fund or, in some cases, jail time up to five years.

Fund trustees or members who have knowingly been involved in a scheme or been approached by anyone claiming that they can withdraw their super early should contact the ATO immediately to advise of the situation and avoid further penalties.

Do you have insurance with your super?

Most super funds offer insurance as part of their super plan. It is important to be aware of what types of insurance you are covered by through your super fund to help you determine if you need extra cover outside your super and if you have adequate support in the event that you cannot work. There are three types of insurance that can be available through super funds:

Life insurance (also known as death cover):
This is the most common of all personal super insurances, and is part of the benefits your beneficiaries will receive when you die. Life insurance is typically applied to your super account by default. It is not compulsory with your super, however, if you have a self-managed super fund (SMSF), then you are required to consider insurance as part of your investment strategy.

Total and permanent disability (TPD) cover:
This insurance pays a lump sum if you become permanently disabled and are unable to work again, protecting you against the risk that your retirement income is cut unexpectedly short. TPD cover is often automatically joined with life insurance as a default cover.

Income protection (IP) cover:
This pays you an income stream for a period of time that you are not able to work due to temporary disability or illness. It is only available as a default cover in about one-third of super funds. It may be particularly useful if you are self-employed or have debts.

From 1 April 2020, you will not be given insurance through your super fund if you are a new member under the age of 25 unless you specifically request insurance and they accept, or if you work in a dangerous job.

You can check what insurance you have with your super fund on your annual super statement, your online super account or by contacting them. Through these you can see the type and amount of cover you have, and how much you are paying for it.

Proposed measures to increase retirement savings 

Currently, people aged 65 to 74 can only make voluntary superannuation contributions if they meet the ‘work test.’ This means they must report themselves to be working a minimum of 40 hours over a 30 day period within the financial year to qualify.

The government has proposed that from 1 July 2020, individuals aged 65 and 66 will be able to make voluntary concessional and non-concessional superannuation contributions without meeting the work test. This approach will enable participants nearing retirement to increase their superannuation savings regardless of their working arrangements.

As well as this, the government also proposes to increase the age limit for receiving spouse contributions from 70 to 74, to be implemented on 1 July 2020. Currently, people aged 70 and over cannot receive any contributions made by another person on their behalf, and the change will give older Australians greater flexibility to save for their retirement.

2019 Updates to the Pension Loan Scheme 

Changes have been made to the Pension Loan Scheme (PLS) under the federal government that came into effect 1 July 2019. The updates aimed to improve the previous scheme and help more retirees boost their retirement income and pay for extra expenses such as home care.

The key features of the new Pension Loan Scheme are:

• Extended eligibility to all Australians of age pension age, now including those currently received the maximum rate age pension.
• The maximum PLS income stream will be the difference between your current age pension payment and 150% of the age pension rate.
• A single person will be able to borrow up to $36,000 a year and a couple could potentially borrow up to $54,000 per year, paid in monthly instalments.
• PSL loans are not taxable and are not counted in the age pension income test.
• The interest rate is 5.25% pa compound, which has been the same since 1997.
• There are no establishment fees or monthly account fees.

To be eligible for the PLS, the following criteria must be met:

• You or your partner have reached age pension age.
• You own real estate with enough equity to secure a loan.
• You have adequate insurance covering the property.
• You are not bankrupt or subject to a personal insolvency agreement.
• You qualify for one of the following pensions: age pension, bereavement allowance, carer payment, disability support pension, widow pension, or wife pension.