1. #CPACONGRESS MC3: Pension strategies: Meeting your retirement objectives Michelle Griffiths Partner, TAG Financial Services Tuesday 18 November 2014 9:00AM - 12:30PM

2. MC18: Pension Strategies Meeting your retirement objectives Presented by: Michelle GRIFFITHS, Partner ®

3. Practical Solutions to Technical Problems Disclaimer This presentation has been prepared by TAG Financial Services Pty Ltd and is for general information only. The presentation has been prepared without taking into account your personal objectives, financial situation or needs. You should assess whether the information is appropriate for your needs.

4. Practical Solutions to Technical Problems Who is in Control of my Retirement Direction?

5. Practical Solutions to Technical Problems How to Plan your Retirement Retirement – what does it mean? The importance of planning Aspects to consider: When will I retire? Standard of living Family situation How much will I need? Where am I now?

6. Practical Solutions to Technical Problems 6 Do I have enough to Retire? Your biggest risk in retirement is not losing your money – it is outliving your money. CASE STUDY Bob and Jane both 57 Have no mortgage Have Super worth $650,000 Desire an income of $50,000 per annum in retirement. Can they retire NOW? If they do retire now – how long with their money last??

7. Practical Solutions to Technical Problems 7 Do I have enough to Retire? Case study shows – assumes a rate of return of 2% above inflation

8. Practical Solutions to Technical Problems 8 Do I have enough to Retire? Case study shows – assumes a rate of return of 2% above inflation

9. Practical Solutions to Technical Problems 9 Do I have enough to Retire? WHAT IF WE WANT TO …. Annual holiday of $20,000 p.a. for the next 10 years Update / renovate the home - $50,000 Gift to the children in a few years time of $100,000 C AN I STILL AFFORD TO RETIRE NOW ?

10. Practical Solutions to Technical Problems 10 Do I have enough to Retire? Case study shows – assumes a rate of return of 2% above inflation

11. Practical Solutions to Technical Problems 11 Do I have enough to Retire? If we change the retirement age from 57 to 61.... Case study shows – assumes a rate of return of 2% above inflation

12. Practical Solutions to Technical Problems Questions you need to answer When do I want to retire? Will I slow down for a while first? How much do I need for normal “living expenses”? What the “extra” things I want to allow for – and how often? Are there gifts to children that are important to me? How much and when? Current situation (a balance sheet for you personally)

13. Practical Solutions to Technical Problems Retirement – by DESIGN Different age groups have different strategies that will apply Strategies must be suited to YOUR circumstances Need to focus on the long term (but not lose sight of the short term) Consider tax implications

14. Practical Solutions to Technical Problems Superannuation as your retirement savings vehicle

15. Practical Solutions to Technical Problems The Power of Superannuation as a Retirement Vehicle Tax free income stream if over 60 15% rebate on retirement income (>60) Salary sacrificing into superannuation – for tax benefits NOW Asset protection Estate planning certainty

16. Practical Solutions to Technical Problems Superannuation Alternatives Industry Funds Continue in current Super Fund Employer Funds Retail Funds Super Wrap accounts Self Managed Super Funds

17. Practical Solutions to Technical Problems Are SMSF’s worthwhile? With a self managed fund you have greater: Control over investment decisions Range of potential investment options Flexibility and control of who receives your benefits in the event of your death – estate planning

18. Practical Solutions to Technical Problems Are SMSF’s worthwhile? With a self managed fund you: Get your full refund for imputation credits Can provide a structure for wealth accumulation of future generations Can pool your money with up to 3 other family members – saving together, investing together and building wealth together ALSO, A SMSF CAN BE MUCH CHEAPER TO RUN!

19. Practical Solutions to Technical Problems 19 Pre-Retirement Strategies Maximise your Super Contributions Plan how much your retirement income will be – and practice living off this – salary sacrifice the balance into Super – put it into savings plan

20. Practical Solutions to Technical Problems 20 Pre-Retirement Strategies Use SMSF or alternative selected to get ready for the investment philosophy/method that will be used in retirement / Learn and seek to understand Get your spouse involved!!

21. Practical Solutions to Technical Problems Retirement Planning Strategies

22. Practical Solutions to Technical Problems 22 Retirement Planning Strategies When pension starts Taxation strategies with pensions Transfer assets into Super Multiple Pensions Exit strategies

23. Practical Solutions to Technical Problems 23 Pension v Lump Sum PensionLump Sum Payable > age 55 Condition of release required Cash payments ONLYCash OR in-specie transfer of assets required Assets within the fund for pension – TAX FREE Fund continues to be taxable Taxed at MTR less 15% rebate (between age 55 – 60) Tax free up to threshold – then max. tax of 17% for taxable component (between age 55 – 60)

24. Practical Solutions to Technical Problems When does the pension start? When the member and the trustee agree that it starts - Trust Deed may specify NOT required for the first pension payment to be made for the pension to have started for tax purposes If pension started after 1 June - then nil minimum pension for that financial year.

25. Practical Solutions to Technical Problems 25 Strategy #1 TTR Pension Strategy Using the Transition to Retirement (TTR) Pension and salary sacrificing… WHY?? Salary income is in tax effective vehicle. Case Study  Caitlin’s super balance $521,000  Earns $152K pa  Currently salary sacrificing $nil into super  55 years old

26. Practical Solutions to Technical Problems 26 Strategy #1 TTR Pension Strategy $3,840 p.a. tax benefit $8,842 p.a. tax benefit

27. Practical Solutions to Technical Problems Strategy #2 Pension / Lump Sum Strategy Benefits of lump sum benefits: Low Rate Cap (if available) - THEN Tax Rate – 17% if between age 55 and 60 SIS Regs. mean that “pension payments” do not exclude commutations paid in cash. Can then elect to have pension treated as lump sum (prior to payment being made).

28. Practical Solutions to Technical Problems Strategy #2 Pension / Lump Sum Strategy Example Age 57 years old Other income = Top MTR $950,000 in Super Min. pension is $38,000 Tax effect if taken as pension: $38,000 x 47% = $17,860 less $38,000 x 15% = $5,700 $17,860 – $5,700 = $12,160 Tax effect if taken as lump sum : $0 (low rate cap); or $6,460 ($38,000 x 17% ) Save between $6,460 - $12,160

29. Practical Solutions to Technical Problems Strategy #2 Pension / Lump Sum Strategy How can you use this strategy?? 1. Member needs to satisfy a “condition of release” for lump sum payment; 2. Need to elect to receive the pension in the form of a lump sum for tax purposes – in ADVANCE of the payments; 3. ETP paperwork rather than Pension for PAYG purposes.

30. Practical Solutions to Technical Problems Strategy #3 Re-contribution Strategy Take lump sum benefit prior to commencing pension and put proceeds back as non-concessional contribution… WHY?? Create higher tax free income stream Have income stream with 15% rebate attached to it Estate planning benefits Case Study  Michael has $521,000 in super (22.6% tax free)  Do we pay out a lump sum benefit and re- contribute back into the fund

31. Practical Solutions to Technical Problems Strategy #3 Re-contribution Strategy Without Re- contribution Re-Contribution (1 July 2014) Super Balance$521,000 Account Based Pension$20,840 Other Personal Income$85,000 $105,840$105,8400 Less tax (net of all rebates)$24,968$23,593 Total Income Stream $80,872$82,247 Tax free % has increased from 22.6% to 50.1% Difference in Tax Paid $1,375 p.a.

32. Practical Solutions to Technical Problems Strategy #3 Re-contribution Strategy REMEMBER – need to make sure MONEY ACTUALLY moves Good for tax planning – but... Don’t forget what you are trying to achieve When starting new pension be clear who the END beneficiary needs to be

33. Practical Solutions to Technical Problems Strategy #4 Transfer Assets Prior to Commencing Pension Structure the client’s income producing assets into Super prior to starting the pension… WHY?? Have earnings taxed at 0% Have income stream with 15% rebate attached to it  Jason - $521,000 in SMSF (22.63% tax free)  $400,000 commercial property earning $32,000 p.a.  Cost to transfer property to SMSF - $18,000 in stamp duty  No CGT on the transfer

34. Practical Solutions to Technical Problems Strategy #4 Transfer Assets Prior to Commencing Pension Difference in Tax Paid - $14,090

35. Practical Solutions to Technical Problems 35 Transfer Assets Prior to Commencing Pension The same benefits apply to using Inheritance money and putting into super as well. Take care with contribution limits Consider stamp duty, capital gains tax, consulting fees

36. Practical Solutions to Technical Problems Contribution Limits – Concessional Contribution limits for 2014/15: $30,000 p.a. per person $35,000 p.a. Per person (if > 50 before 30/6/2014) Multiple employers can contribute and claim deduction – but excess contributions for member Can claim deduction up to age 75 SCG ONLY after age 75

37. Practical Solutions to Technical Problems Contribution Limits – Non-Concessional $180,000 pa per person (from 1 July 2014) If TFN of member not provided, cannot accept Bring forward of 3 years worth of non- concessional contributions allowed ($540,000)

38. Practical Solutions to Technical Problems Strategy #5: Multiple Pensions Background: Proportional rule used to determine taxable / tax free % when pension started (will then apply to all pensions / withdrawals) HOW: When a NEW pension starts – instead of just merging with existing pension – keep each pension separate

39. Practical Solutions to Technical Problems Multiple Pensions

40. Practical Solutions to Technical Problems Multiple Pensions WHY? To quarantine the tax-free benefits - in case later lump sum benefits required (> age 60) To preserve the tax-free components for non- dependent beneficiaries ( adult children ) HOW? Make any new UDCs to new Fund Start pension with existing taxable balance B4 making UDCs

41. Practical Solutions to Technical Problems Estate planning considerations with super

42. Practical Solutions to Technical Problems Who gets my Super when I die? Will depend on: What does the Trust Deed say; Do they have a Binding Nominated Beneficiary Form; Do they have a Reversionary Pension in place; and/or Do they have a Pension Contract in place?

43. Practical Solutions to Technical Problems Binding Nominated Beneficiary Form If Binding Nominated Beneficiary Form (BNBF): Trustee can comply with members’ wishes If no BNBF – or trust deed doesn’t allow it:  Refer to the Trust Deed – who does IT say the benefit needs to be paid to;  Only use the LPR as a last resort ONLY.

44. Practical Solutions to Technical Problems Reversionary Pensions  Reversionary pensioner takes over the “ownership” of the pension  BNBF will NOT apply to this rev. pension  However:  The rev. beneficiary MUST BE a “tax dependant”  Rev. notice will apply to the one pension at a time  Will NOT apply to any Accumulation accounts  If the rev. beneficiary is NOT a “tax dependent” – THEN the BNBF would become relevant

45. Practical Solutions to Technical Problems Reversionary Pensions On the death of the reversionary beneficiary – the remaining balance in the reversionary pension will be dealt with in accordance with the Binding Nominated Beneficiary Form of that reversionary beneficiary (not the original deceased pensioner)

46. Practical Solutions to Technical Problems Pension Contracts What are Pension Contracts?  Simply a contract between a member and the fund trustee/s  Takes effect upon the member’s death  Obligates the trustee/s of a SMSF to act in accordance with the member’s terms set out in that contract

47. Practical Solutions to Technical Problems Pension contract (example) Pension contract put in place when pensions started To care for children if new spouses Conditions: Limited pension to surviving spouse No commutation of pension After death of surviving spouse, any remaining pension split to deceased members children

48. Practical Solutions to Technical Problems Managing pensions on Death of the member Exit strategies Reversionary pensions Withdrawal from Super Leave to next generation – in Super but HOW? Leave to next generation – but NOT in Super Planning prior to death??

49. Practical Solutions to Technical Problems Value of Advice Industry funds, media and Govt – trying to devalue the value of advice Who needs advice? Everyone needs advice at some point in their lives You need to ensure that you are paying for advice that is in your interests Professionalism, independence, ethics

50. Practical Solutions to Technical Problems Classic “mistakes” Complacency Procrastination Loss of control Don’t manage your own business/finances Emotions – over riding decision making Lack of planning / budgeting Lack of Goals and Objectives

51. Practical Solutions to Technical Problems Contact us at TAG.. LinkedIn – please Connect with us Michelle Griffiths Join our accountant’s network for quarterly super news and tips… www.tagfinancial.com.au

52. Practical Solutions to Technical Problems TAG Financial Services Investment Advisory & Wealth Strategies Superannuation Advisory Services Property related advice Estate Planning Strategies Business Advisory & Tax Consulting Ph:(03) 9886 0800 Fax: (03) 9886 0844 Email: team@tagfinancial.com.au Web: www.tagfinancial.com.au