Pre Retirement Planning 19 August, 2013 The information contained within this presentation is intended to provide general advice only. It has been prepared without taking into account your objectives, financial situation or personal needs. Prior to making any investment decisions, you should speak with a financial adviser to consider whether this information is appropriate for your needs, objectives and circumstances. You should obtain a copy of the relevant product disclosure statement (PDS) prior to making a decision regarding any investment in any financial product. This information is current as at July 2013 and is based on our understanding of legislation at that date. Information relating to the 2012/13 & 2013/14 Federal Budgets, and announcements made by the Federal Government on 5 April 2013 is based on our understanding of the proposals. The information provided in this presentation in relation to these announcements is subject to change and certain proposals may not become effective until they are enacted by Parliament. You should not rely on this information and it should be verified prior to making any decision The information contained in this presentation is not legal, taxation or accounting advice. Professional advice should be obtained before making any decisions. Whilst care has been taken in the preparation of this information, the accuracy or completeness of the information is not guaranteed. This presentation was prepared and issued by UniSuper Management Pty Ltd ABN 91 006 961 799, AFSL No: 235907, which is also the administrator of, and wholly owned by, the UniSuper Superannuation fund (ABN 91 385 943 850). UniSuper Limited (ABN 54 006 027 121) is the trustee of the fund. If you would like to contact us please do so on 1800 331 685 or alternatively send us an email to enquiry@unisuper.com.au 2 1
About UniSuper Run exclusively for the higher education sector Covers 37 universities and over 200 related bodies Low fees & competitive insurance Spouse membership available Online access with weekly switching available In-house administration & investment teams Most employers can contribute to UniSuper Superannuation & Income Streams Pre-Retirement Planning 24 May 2013 3 UniSuper investment performance Balanced option performance over 1, 3, 5, 7 and 10 years (to 31 December 2012) is above the SuperRatings median* - Best performing Balanced fund in 2012 according to SuperRatings - return for 12 months to 31 December 2012 was 14.96% UniSuper s 9 year rate of return across all products and investment options to 30 June 2012 ranks 4th (out of 159 funds)** *SuperRatings return data 31 December 2012 as published on 21 January 2013. Does not take into account any subsequent revisions or corrections made by SuperRatings. **(APRA) Statistics SuperannuationFund-level Rates of Return Report 9 January 2013. The past performance of an investment option should not be relied upon as an indicator of future performance. 4 2
Agenda Retirement Income Adequacy Boosting my super - Understanding Contributions - Salary Sacrificing Transition to Retirement Superannuation & Estate Planning Q & A 5 Retirement Income Adequacy 6 3
Modest v comfortable retirement Modest Lifestyle Comfortable lifestyle Single $22,654 p.a. $41,197 p.a. Couple $32,656 p.a. $56,406 p.a. Lump sum required to generate a comfortable lifestyle - single Lump sum required to generate a comfortable lifestyle - couple $430,000* $510,000* Source: ASFA Retirement Standard June2013. See www.superannuation.asn.au for ASFA s Retirement Standard Calculator. *Assumes receipt of part age pension. 7 Boosting my Super Understanding Contributions 8 4
Contributions and caps Contribution Type Employer Standard Member before-tax (e.g. 8.25%) Standard Member after-tax (e.g. 7%) Voluntary salary sacrifice Voluntary after-tax Deductible (e.g. self employed or retired Spouse Contribution Concessional (before-tax) Non-Concessional (after-tax) 2013/14 Contribution Limits Concessional Non-Concessional Under age 60 $25,000 p.a. $150,000 p.a. or $450,000 (over 3 years Age 60 or over $35,000 p.a. and under age 65) Tax on Excess Contributions Marginal tax rate* 46.5% * Plus potential interest charge 9 Contributions and caps Changes to higher concessional contribution cap Individual s aged 60 and over to receive a higher concessional contribution cap from 1 July 2013 - Applies to individual s age 50 and over from 1 July 2014 Higher cap applies regardless of account balance Financial Year Concessional Contribution Cap Under age 50 Age 50 to 59 Age 60 and over 2013/14 $25,000 $25,000 $35,000** 2014/15 $30,000* $35,000** * Likely increase through indexation ** Unindexed 10 5
Boosting my Super Understanding Salary Sacrificing 11 Understanding Salary Sacrifice Is a before-tax (concessional) contribution to superannuation Example: Heather is considering salary sacrificing $10,000 Superannuation Account Note:Concessional contributions limits apply If Salary Sacrificed (taxed at 15%) If taken as income (fully taxable e.g. at 34%) $10,000 of Salary 12 6
Transition to Retirement (TTR) Overview 13 What is transition to Retirement (TTR)? The drawing of a concessionally taxed income stream from your superannuation savings while still working Superannuation Account Rollover TTR Pension Account Income Stream Age 55-59 (concessionally taxed) Age 60+ (tax-free) Salary Fully Taxable 14 7
Why a Transition to Retirement Pension? Superannuation Account Earnings taxed at 15% TTR Pension Account Earnings tax-free Tax free investment earnings Transition gradually into retirement Reduce working hours without reducing level of income May free up additional income to fast-track debt repayment Combined with salary sacrificing: - Creates potential tax savings - May boost retirement savings 15 Eligibility for a UniSuper TTR Pension Must have reached your preservation age Have a UniSuper Accumulation account Minimum starting balance: $25,000 For Defined Benefit Members: - Can use your accumulation component - If you wish to use any of your defined benefit component you will need to reduce your working hours by 20%, with any remaining balance transferred to an Accumulation 2 account. - For more information contact Member Services or go to www.unisuper.com.au 16 8
Your Preservation Age Date of Birth Preservation Age Before 1 July 1960 55 July 1960 to June 1961 56 July 1961 to June 1962 57 July 1962 to June 1963 58 July 1963 to June 1964 59 After 30 June 1964 60 17 TTR Pensions Maximum pension payment = 10% of account balance p.a. Minimum pension payment = 4% of account balance p.a. No lump sum withdrawals allowed Full investment choice Returns are not guaranteed Cannot add funds once established Upon turning age 65: No maximum pension payment limit Lump sum withdrawals allowed 18 9
TTR Pensions & Tax TTR pension payments will contain up to two tax components: Taxable Component includes all before-tax contributions Tax Free Component includes all after-tax contributions Pension Payment Age 55-59 Age 60+ Taxable Component Tax-free Component Taxable less 15% rebate Tax-free Tax-free For your tax components contact Member Services 19 TTR Pensions & Salary Sacrificing 20 10
Example: TTR Pensions & Salary Sacrificing Example: Heather, age 60, rolls over $200,000 from her Superannuation account into a TTR Pension account and draws $12,500 in pension payments as follows: Superannuation Account Rollover $200,000 TTR Pension Account Additional Super Contributions Salary Sacrifice ($18,940) Income Stream $12,500 (Tax-free) Salary $80,000 (fully taxable) Net income remains $61,255 Total Super boost $3,000 21 Example: TTR Pensions & Salary Sacrificing Example: Heather, age 60, rolls over $200,000 from her Superannuation account into a TTR Pension account and draws $12,500 in pension payments as follows: Superannuation Account Rollover $200,000 TTR Pension Account Instead of salary sacrificing, Heather could reduce her working hours... Income Stream $12,500 (Tax-free) Reduced Working Hours (fully taxable) Net income remains $61,255 22 11
Tax-free earnings for TTR Pension Account Assuming a balance of $200,000 and an annual return of 7% Superannuation Account Versus TTR Pension Account Investment return: $14,000 Less15% tax on investment return Net investment return = $11,900 Investment return: $14,000 Less zero tax on investment return Net investment return = $14,000 Additional $2,100 TTR investment return 23 5 April 2013 Federal Government Announcement Proposal: Cap tax exempt earnings for superannuation income streams Includes earnings from dividends, interest and some measure of assessable capital gains Applies to all superannuation income streams including defined benefit pensions Income Stream Earnings Current tax treatment Proposed tax treatment from 1 July 2014 Up to $100,000 p.a Nil Nil Over $100,000 p.a Nil 15% Exact details of how the tax will work has not yet been finalised 24 12
The UniSuper TTR Pension Available through the UniSuper Flexi Pension Minimum balance: $25,000 Full investment choice with weekly switching Online Access Pension payments to multiple bank accounts Low fees and a history of strong performance Reversionary nominations available Balance to estate / dependants 25 TTR Considerations TTR can be complex. Issues to consider include: Your personal situation - Age - Salary - Other income - UniSuper membership (including potential impact on inbuilt benefits and optional insurance) - Account balance & tax components Estate planning considerations Contribution caps Potential Centrelink considerations and more... 26 13
Superannuation & Estate Planning 27 How can a super death benefit be paid? Defined Benefit Member Lump Sum to Estate Flexi Pension Member (incl. TTR) Accumulation 1 or 2 Member Lump Sum to Dependent(s) Commercial Rate Joint Life Indexed Pension Member Spouse Account Member Reversionary Income Stream to Spouse Defined Benefit Indexed Pension Member 28 14
Estate Planning Considerations Superannuation death benefits Tax treatment Membership type Dependants vs Non-dependants Preferred Nomination vs Binding Nomination Potential Centrelink implications and more... 29 Other pre-retirement considerations Pay off mortgage reduce burden on retirement living expenses Review insurance needs; consider: - Kids now financially dependant? - Mortgage paid off? - Car insurance - cheaper when no longer driving to work Target date and time frame to retirement; consider effect on - Maximising super benefits and any lump sum (e.g. leave) payments - Asset allocation and exposure to higher risk assets 30 15
MemberOnline Account Balance (updated daily) Investment Switching Statements Fact sheets & tutorials Calculators Insurance Cover Comparison service and much more... Register today at www.unisuper.com.au 31 How UniSuper can help UniSuper offers 3 levels of advice: General Advice (phone-based) - Not specific to your personal situation Limited Advice (phone-based) - Single issue personal advice specific to your situation Comprehensive Personal Advice (face to face) - Full personal advice covering multiple issues specific to your situation 32 16
UniSuper Advice Investment considerations for accumulation funds, including: - Choosing from UniSuper s 15 investment options an appropriate investment mix given your risk profile and time horizon to retirement Review existing financial structures - Align with goals and objectives Review super contributions leading up to retirement 33 UniSuper Advice Transition to Retirement; including for: - Eliminating debt, reducing work hours, meeting income needs... Retirement Planning modelling - Including multiple scenario analysis Centrelink strategies - Targeting Age Pension and/or associated concession cards Estate Planning and more... 34 17
How UniSuper can help A UniSuper Private Client Adviser can help give you peace of mind The advice is charged at an hourly rate, with no commissions paid There is no charge for the first appointment Call UniSuper Advice today on 1300 331 685for a complimentary initial assessment on the level of advice that might suit you 35 Any questions? 36 18
The Board s recent decision The Board has made its decision under Clause 34 of the Trust Deed Benefits members have accrued to date will not change The Board has decided to make a change to the way future benefits will accrue The change will affect Benefit Salary, which is part of the DBD formula The change will not take effect until 1 January 2015 37 What is the change? Current DBD formula Benefit Salary Current Average over three years Each of the three salaries is indexed by CPI From 1 January Average over five years No longer indexed by CPI 38 19
Further information... Go to: www.unisuper.com.au/dbdupdate 39 Additional Federal Government Announcements 2013/14 Federal Budget April 2013 Announcements 2012/13 Federal Budget 40 20
2013/14 Federal Budget Announcement Pilot Proposal: Housing Help for Senior Australians Means test exemption for Age Pension recipients downsizing from their family home - Home must have been owned for at least 25 years - At least 80% of sale proceeds (up to $200,000) to be deposited into a special account - Funds deposited (plus interest) exempt from means testing for up to 10 years provided no funds withdrawn for life of account 41 2013/14 Federal Budget Announcement Pilot Proposal: Housing Help for Senior Australians Exemption also applies to people assessed as homeowners who move to a retirement village or granny flat - Does not apply to those moving into residential aged care Pilot will commence on 1 July 2014 and be closed to new customers from 1 July 2017 42 21
Contributions and caps Changes to higher concessional contribution cap Individual s aged 60 and over to receive a higher concessional contribution cap from 1 July 2013 - Applies to individual s age 50 and over from 1 July 2014 Higher cap applies regardless of account balance Financial Year Concessional Contribution Cap Under age 50 Age 50 to 59 Age 60 and over 2013/14 $25,000 $25,000 $35,000** 2014/15 $30,000* $35,000** * Likely increase through indexation ** Unindexed 43 April 2013 Federal Government Announcement Proposal: Cap tax exempt earnings for superannuation income streams Includes earnings from dividends, interest and some measure of assessable capital gains Applies to all superannuation income streams including defined benefit pensions Income Stream Earnings Current tax treatment Proposed tax treatment from 1 July 2014 Up to $100,000 p.a. Nil Nil Over $100,000 p.a. Nil 15% Exact details of how the tax will work has not yet been finalised 44 22
April 2013 Federal Government Announcement Proposal: Cap tax exempt earnings for superannuation income streams Application to defined benefit pensions: - Notional earnings to be calculated each year per defined benefit pension member - Calculations to be based on actuarial calculations, and will depend on the size of the member s pension and their age - Amount of notional earnings will reduce as member grows older Exact details of how the tax will work has not yet been finalised 45 New Treatment for Excess Concessional Contributions Applies to excess concessional contributions from 1 July 2013 Eligible individual s can withdraw up to 85% of excess concessional contributions made from 1 July 2013 Special conditions apply to Defined Benefit members Concessional Contributions from 1 July 2013 Tax on Contribution Up to the CCC 15% Over the CCC and remaining in superannuation account Over CCC but withdrawn from superannuation account Amount included in assessable income and taxed at marginal tax rate plus interest charge payable to the ATO CCC = Concessional Contribution Cap 46 23
April 2013 Federal Government Announcement Proposal: Deeming rules to apply to income from accountbased pensions For the purposes of calculating Centrelink Pension entitlements under the Income Test Applies to all account-based pensions commenced from 1 January 2015 Account-based Pension Commencement Date Before 1 January 2015 Assessment of pension income under Centrelink s Income Test Annual Pension less deduction amount 1 January 2015 onwards Annual Pension deemed 47 April 2013 Federal Government Announcement Proposal: Deeming rules to apply to income from accountbased pensions Example: Margaret, aged 65 and single, commences an account based pension with $500,000 drawing an income stream of $35,000 p.a. Account-based Pension Commencement Date Before 1 January 2015 1 January 2015 onwards Assessment of pension income under Centrelink s Income Test $11,873 ($35,000 ($500,000/21.62)) $19,319 (45,400 x 2.5%) + ($454,600 x 4%) 48 24
April 2013 Federal Government Announcement Other proposals Further reforms to the arrangements of lost superannuation Establishment of a Council of Superannuation Custodians - to ensure future changes are consistent with an agreed Charter of Superannuation Adequacy and Sustainability Extending concessional tax treatment to deferred annuities 49 Reduced tax concessions for high income earners New tax rules apply to individuals with income above $300,000 p.a. Income includes concessional contributions to superannuation Concessional contributions maybe taxed at an extra 15% - Does not apply to Excess Concessional Contributions subject to Excess Concessional Contributions Tax UniSuper 101 10 May 2013 50 25
2012/13 Federal Budget Announcement Employment Termination Payment (ETP) Tax Offset Changes to the tax offset applied to Employer Termination Payments for affected ETP s (e.g. golden handshakes) - Only the part of the ETP that takes a person s taxable income (including the ETP) to $180,000* receives tax offset - Existing arrangements for ETP s relating to genuine redundancy, invalidity, compensation due to an employment related dispute or death are likely to remain unchanged. * For the 2012/13 financial year 51 2012/13 Federal Budget Announcement Mature Age Worker Tax Offset To be phased out for workers born on or after 1 July 1957 Offset to remain available for tax payers who are aged 55 or older on 30 June 2012. - Maximum benefit is $500 and you must be receiving income from working (within certain limits) 52 26