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Superannuation, Pensioners & The Federal Budget – Announcements From 2022-23, And What’s Still Being Delivered

The Federal Budget was released last Tuesday, announcing key changes to taxation and business. For superannuation, the minimum pension drawdown amount was in the spotlight.

The reduction in the minimum pension drawdown amount for superannuation pension recipients has been extended for another year by the Federal Government, as announced in the Budget for 2022-23.

The minimum pension amount will be only 50% of the general amount (the balance from which the pension is drawn). For example, a 65-year old would usually need to draw down 5% of their opening balance as a pension payment throughout the year.

For the 2022-23 financial year, the minimum amount will be reduced 50% (dropping this to 2.5%). This measure is set to cost the Federal Government around $19.2 million dollars for the 2022-23 years, but you need to be alert and conscientious about it.

Why Is That?

Whilst it is a great outcome to keep as much of your money in your super as is possible (if it’s not required for you to live on), you do need to be conscious that at some point, the remaining balance will be passed onto the next generation, potentially as a part of their inheritance.

When this money does change hands and is given to the next generation if the superannuation balance includes a taxable component, then your children may be subject to as much as 17% tax on the capital value of that balance.

Different tax treatments can apply depending on whether your super is being paid as a lump sum, income stream or mixture of both, and if your beneficiary or beneficiaries are classified as ‘tax dependants’.

A tax dependant includes:

  • a current spouse, including defactos
  • any children of the deceased who are under the age of 18
  • any other financial dependents.

If your beneficiaries were not financially dependent of you, such as a spouse or child under 18 years of age, then they will have to pay tax on the inheritance that you have left for them in your superannuation fund.

However, if you take that money out of your super and it passes to your children as a part of your estate instead, there will be no death duties payable (in this instance, ‘death duties’ refers to inheritance tax that may be payable, which has not been an issue since 1981).

The primary reason for the reduction in the minimum pension payment amount is to protect pensioners from having to sell their assets during a volatile period. However, this is a double-edged sword that needs to be carefully considered and weighed against your circumstances.

You May Need To Start A Discussion 

Superannuation can be a tricky area to navigate, especially when you’re trying to do it by yourself.

If you’re approaching retirement, you may have questions about how to prepare for your pension years. These may include

  1. General retirement adequacy – how much money you’ll actually need to retire on
  2. How to manage your finances in retirement
  3. Old age issues that could crop up
  4. Using your home to fund retirement and insurance (and embracing the grey nomad lifestyle)
  5. Recent changes to superannuation measures, including the extended timeframe of the minimum pension drawdown,

Consulting with a professional is the best way to ensure that your pension is currently operating at its most effective level, and they can assist you with understanding what you may need to do to get your affairs in preparation for the future.

If you’re someone who often finds it difficult to make large lump sum payments for goods or services, you may want to consider looking into “Buy Now Pay Later” services.

Buy now pay later essentially means that, rather than paying in a full lump sum payment for a product or services rendered, there may be an option to pay through instalments of a certain amount over a set period to make the sum of the full amount in total. This method should allow you to pay in full for the product or service without overly straining your finances – you pay back what you can, as agreed upon when you begin the buy now pay later service.

Some popular buy now pay later services include Afterpay, Zip Pay, Brightepay, and some credit card networks such as  Mastercard and Visa, can offer buy now pay later arrangements.

Though it can be a convenient, immediate solution, it may be challenging to juggle the necessary repayments with other financial commitments. It’s not always the most appropriate method for people, and you should bear in mind your situation and ability in paying back the amounts. 

Before you sign up, keep in mind: 

  • It becomes easier to overspend with buy now pay later services, so know your limits on what you can and can’t afford.
  • You will be charged fees and costs to use the service, which can add up to a princely sum in and of itself.
  • Keeping track of your payments can be tricky if you’ve signed up for multiple services.
  • It could affect your loan applications for a car or mortgage as lenders consider buy now pay later spending just as much as your credit score.
  • Late repayments can appear on your credit report, which affects your ability to borrow money in the future.
  • Layby can be a cheaper alternative to buy now pay later, with no account-keeping or late fees to consider

If you are someone who could make use of BNPL services, you may wish to:

  • Ensure that when using the BNPL service, you stick to a set limit on what you spend so that you can comfortably pay it back later. 
  • Aim only to have one BNPL account at a time to manage payments through, rather than confuse yourself with multiple payments across different providers.
  • Always budget for bills, loan payments and BNPL payments, and 
  • Rather than use your credit card for payments to your BNPL account, consider linking to your debit account instead.

If you would like assistance in planning your financial future, help in managing your budget or some friendly advice, see us for a chat about what we can do for you.

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Jane Noller has been my accountant for the last 15 plus years. I can testify to Jane’s professionalism and expeditious manner in dealing with the day to day issues that surrounds our business accounting.

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