Transcript UniSuper 101 An introduction - University of Western Australia

Financial Considerations
for Early Retirement
Schemes
18 July, 2015
Disclaimer
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.
UniSuper defined benefits (including defined benefit pensions) are not guaranteed and are subject to the risk that the pool of assets supporting
them may not be sufficient to meet all of UniSuper’s defined benefit obligations. In the event of prolonged underfunding, clause 34 of UniSuper’s
trust deed provides a mechanism for defined benefits to be reduced on a fair and equitable basis. A clause 34 monitoring period was recently
concluded and it was resolved to reduce the defined benefit formula from 1 January 2015 by changing the way Benefit Salary is determined as it
applies to service on and after 1 January 2015. This change does not affect defined benefits or pensions that become payable before 1 January
2015. There are three further clause 34 monitoring periods in place, concluding on 30 June 2015, 30 June 2016 and 30 June 2017.
This information is current as at July 2014 and is based on our understanding of legislation at that date.
Information relating to the 2014/15 Federal Budget 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 [email protected]
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UniSuper’s awards – super & pensions
SuperRatings, a superannuation research company,
has awarded UniSuper a Platinum rating for its
Accumulation products and Flexi Pension product.
SuperRatings Infinity Recognised is awarded to super
funds that clearly demonstrate excellent sustainable
business practices and responsible investment
principles. Go to www.superratings.com.au for details
of its rating criteria. SuperRatings does not issue, sell,
guarantee or underwrite this product
Chant West, has awarded UniSuper a 5 Apples rating
for its Accumulation products and Flexi Pension
product. Further information about the rating
methodology
used
by
Chant
West,
see
www.chantwest.com.au
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Outcomes of this session
How your entitlements are taxed
Organise to replace your income
Important decisions to make now
Stay with UniSuper
Sources of further information
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Your leaving work benefits
Employer
Superannuation
Lump sum
Access depends on your age
Pension
Lump sum
Early Retirement
Scheme payment
Pension & lump sum combination
Long service leave
Annual leave
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Early Retirement Scheme payment
Your entitlements may be based upon a combination of:
Contractual or statutory provisions of employment
Gratuity payments or payments in lieu of notice
Unused RDO’s or sick leave (if applicable)
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Taxation of an Early Retirement Scheme
payment
Based on:
The tax components of the payment
Your age
Your length of service
You will receive a quote from your employer showing
the before and after tax payment
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Taxation of an Early Retirement Scheme
payment
ETP = Employment Termination Payment
49% tax
Taxable portion of ETP
Over ETP cap of $185,000*
Under age 55
32% tax
Up to ETP cap of $185,000*
Over age 55
17% tax
Tax free portion of ETP
0% tax
Relates to portion of pre 1/7/1983 service
Tax free amount*
0% tax
First $9,514 +
($4,758 x complete years of service)
* Based upon 2014/15 rates. No tax free amount if age 65 or over.
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2014/15 tax rates
Taxable income
Tax
0-$18,200
Nil
$18,201 - $37,000
19c for each $1 over $18,200
$37,001 - $80,000
$3,572 plus 32.5c for each $1 over $37,000
$80,001 - $180,000
$17,547 plus 37c for each $1 over $80,000
$180,001 and over *
$54,547 plus 47c* for each $1 over $180,000
* Includes the 2% Temporary Budget Repair Levy applicable on taxable income in
excess of $180,000
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Tax on other payments
When termination is because of genuine redundancy, invalidity
or early retirement scheme . . .
Type of payment
Tax deducted by employer
Long Service Leave
32%*
Annual Leave
32%
Payments must be taken as cash
* If your employer service period pre-dates 16 August 1978, you may pay less tax on the Long Service Leave
portion of your payment.
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Example 1
Net cash payment = $154,010
Sarah
Age: 58
ETP
$24,166
Service:
15 years & 9 months
Early Retirement
Scheme payment:
$110,000
Annual Leave:
$18,000
Long Service Leave:
$54,000
Tax free amount
$80,884
Annual Leave
$12,240
LS Leave
$36,720
Tax on Early Retirement
Scheme payment $29,116 x
17% = $4,950
Calculate Tax Free Amount
$9,514 + ($4,758 x 15) = $80,884
Tax on Annual Leave
$18,000 x 32% = $5,760
Tax on Long Service Leave
$54,000 x 32% = $17,280
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Example 2
Net cash payment = $158,650
Peter
Age: 66
Service:
25 years & 2 months
Early Retirement
Scheme payment:
$195,000
ETP over cap
$5,100
Tax on Early Retirement
Scheme payment $10,000 x
49% = $4,900
ETP under cap
$153,550
Tax on Early Retirement
Scheme payment $185,000 x
17% = $31,450
Annual Leave:
$0
Long Service Leave:
$0
Tax free amount
$0
No Tax Free Amount
as over age 65
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Income options available
You may choose to source your ongoing living needs from
Drawing on your Early Retirement Scheme lump sum
Part time / casual / contract work
Centrelink benefits
Lump sum withdrawals* from super
A pension* commenced with your super
A combination of the above
*Subject to age and work status
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Age Pension eligibility
Current arrangements
Men
Qualification Age
65 years
Women
Date of birth
Qualification Age
Before 1 January 1949
Age reached
1 January 1949 – 30 June 1952
65 years
Note: After 1 July 2017, the qualifying age for an Age Pension will be
increasing progressively from 65 to 67 years of age.
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Potential Centrelink entitlements
Age Pension
No waiting period
Must be Age Pension age
Satisfy income and assets test
Full Age Pension
Single $854.30 pf
Couple $1,288 pf
Rates as at 20 September 2014
Includes supplements
Single
Couple (combined)
Fortnightly income less than
$1,868.60
$2,860
Homeowner’s assets less than
$771,750
$1,145,500
Non-homeowner’s assets less
than
$918,250
$1,292,000
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Potential Centrelink entitlements
Full Allowance
Single $521.80 pf
Couple $471.70 pf each
Newstart Allowance
Rates as at 20 September 2014
Includes Pharmaceutical
Allowance
Under Age Pension age
Waiting period based on Early Retirement Scheme payment
Undertake Activity Test (job search, volunteer, training)
Satisfy income and assets test
Single
Couple (combined)
$999
$914 each
Homeowner’s assets less than
$202,000
$286,500
Non-homeowner’s assets less
than
$348,500
$433,000
Fortnightly income less than
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Accessing super - preservation age
Your preservation age is one of the ‘conditions of release’ for
accessing your preserved super as a lump sum or pension.
It is increasing progressively from age 55 to 60 and depends on
your date of birth:
Date of Birth
Preservation
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
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Super preservation
You may be able to access your super benefits if
Preserved
Restricted
Non-Preserved
Unrestricted
Non-Preserved
Meet a condition of release
- Reach preservation age & retire;
- Over age 60 & cease an employment
arrangement
- Over age 65
Leave your contributing employer
OR
Meet a condition of release (above)
You can access these funds at any time
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Tax on lump sum super withdrawals
Tax Free
Component
Taxable Component
Under PA*
0%
22%
Between PA* and age 59
0%
Over age 60
0%
First $185,000
0%
Over $185,000
17%
0%
* PA = Preservation Age.
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Lump sum withdrawal example
Diane is aged 56 and decides to
retire after receiving an Early
Retirement Scheme package.
She wants to withdraw $220,000
from her super to repay her
mortgage.
Her super has the following
components:
• Tax free
$50,000
• Taxable
$450,000
For this withdrawal, 10% is tax
free ($50,000/$500,000)
Components of $220,000
withdrawal:
Tax free
$22,000
Taxable
$198,000
Tax on taxable component:
= ($198,000 - $185,000) x 17%
= $2,210
How much tax will she pay?
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UniSuper pensions
UniSuper offers three styles of pensions:
Flexi Pension
Commercial Rate Indexed Pension
Defined Benefit Indexed Pension – restricted to
Defined Benefit Division (DBD) members who joined
the Defined Benefit Division prior to 1 July 1998
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UniSuper Pensions
Flexi Pension
Commercial Rate
Indexed Pension
Defined
Benefit
Indexed
Pension



Member nominates pension
amount (subject to annual
minimum)#
Fixed CPI indexed pension
based on initial sum invested
Fixed CPI indexed
pension based on
Trust Deed factors
Can you make lump sum
withdrawals?
#


How long will the pension
last?
Until the account balance is
zero
Lifetime
(10-year guarantee period)
Lifetime
What benefits are paid when
you die?
Remaining account balance
paid as either a reversionary
pension to spouse or child or
lump sum to beneficiaries
Joint pension paid to
surviving spouse, or sum
within guarantee period
To surviving
spouse only (or
dependent
children)
Investment choice
How is your annual pension
calculated?
# Restrictions apply when taking a pension under transition to retirement rules
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Tax on Pensions
Super
Pension
15%
0%
Under age 60
Age 60 and over
Taxable proportion
Marginal tax rate
(less 15% tax offset)
0%
Tax-free proportion
0%
0%
Investment earnings
Annual pension
income
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Tax on pensions
Compare earnings of $50,000 p.a. as ordinary income versus pension
income when under the age of 60
Ordinary income
Pension income
$50,000
-
-
$50,000
$50,000
$50,000
($7,797)
($7,797)
-
$7,500
Net income after tax
$42,203
$49,703
Medicare levy **
($1,000)
($1,000)
Other taxable income
Pension income (100%
taxable)
Taxable income
less tax*
plus tax offset for pension
(15% x $50,000)
* Based on 2014/15 tax rates and does not include any tax offsets which may be available.
** Medicare levy has been included; however, the amount payable can vary between taxpayers depending
on their own incomes, their combined family incomes & the number of dependent children (if any).
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What happens when I leave my employer?
1. Your employer will notify UniSuper that you have left
2. Information pack on your UniSuper Benefit and Options
- automatically sent by UniSuper
3. If a Defined Benefit Division member, you have 90 days
from your employment finish date to let UniSuper know
what you would like to do with your benefits
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The first 90 days are important
1. Get new
employment
2. Withdrawal
Defined
Benefit
Division
(DBD)
members
3. Open a UniSuper
pension (subject to
age & work status)
4. Defer DBD
membership
Stay a member
of the DBD
•• Defined
Benefit Indexed
• Participating
employer
– age
DBD
(benefit growth
limited –
Pension
(if
eligible)
DBD
benefit
is(inside
transferred
to an
can
continue
•• Withdrawal
sum90if days
eligible)
factor
only)(lump
• Accumulation
Commercial
Rate
Indexed
1 account
only)
•• Rollover
tore-activate
another fund
Possibly
DBD
Pension
•• Investment
choice
nowdate
Other
employer
choice
membership
at a– later
• important
Flexi
Pension
means
you stay with UniSuper
• Retain eligibility for DB Indexed
(only accumulation account)
Pension
5. Do nothing
All of the options can affect your benefit entitlements and insurance cover. You should
seek advice as to your appropriate level of cover.
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The first 90 days are important
1. Get new
employment
2. Withdrawal
Accumulation 2
members
3. Open a UniSuper
pension (subject to
age & work status)
•
••
Participating employer –
Accumulation
2
Commercial
Rate
Indexed
Withdrawal
(lump
sum
ifis
Accumulation
2 benefit
can
continue
transferred into an
Pension
eligible)
• Accumulation
Other employer
– choice means
1 account
•• Flexi
Pension
Rollover
another
fund
you stay to
with
UniSuper
(Accumulation 1 account)
4. Do nothing
All of the options can affect your benefit entitlements and insurance cover. You should
seek advice as to your appropriate level of cover.
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What if I start a new job?
In the higher education and research sector
- You can provide your UniSuper membership number for future
contributions
Outside the higher education sector
- You have the option to elect UniSuper as your preferred super
fund
- If so desired, complete the Choice of Fund forms and provide to
your new employer
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Your UniSuper membership advantages
Keep in mind that no matter what your next step is, you can
remain a UniSuper member and benefit from:
 competitive fees
 a choice of investment options
 insurance cover (if applicable)
 access to UniSuper’s pension products
 personal advice from UniSuper Advice (at competitive fee for
service rates)
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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
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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 331 685 for a complimentary
initial assessment on the level of advice that might suit you
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Need more information?
Read through your Benefit Options pack and information
UniSuper’s website www.unisuper.com.au
Call the UniSuper Helpline – 1800 331 685
Contact Centrelink’s Financial
Information Service
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Any questions?
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Appendix
Further detail on UniSuper Pensions
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Flexi Pension
account-based pension
minimum commencement sum of $25,000
able to withdraw lump sums (commutation).
You decide:
•
how it is invested – choice of investment option(s)
•
payment frequency (fortnightly, monthly, quarterly, biannually or annually)
•
pension amount (subject to minimums).
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Flexi Pension
The minimum pension is calculated upon commencement and at 1
July each year thereafter.
It’s based on your age and account balance.
Age
% factor (2014/15)
55 – 64
4%
65 – 74
5%
75 – 79
6%
80 – 84
7%
85 – 89
9%
90 – 94
11%
95+
14%
Example:
On 1 July 2014, Carol is aged 66 and has
an account balance of $400,000.
Her minimum pension for 2014/15 is
$20,000 (i.e. $400,000 x 5%)
Carol nominates to receive a pension of
$2,200 per month ($26,400 p.a.)
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Commercial Rate Indexed Pension
Lifetime pension purchased using super balance (minimum of $25,000)
Monthly pension indexed in line with the Consumer Price Index (CPI) each July
10-year guarantee period
Pension quote is based on interest rate and age factors.
You decide:
•
between a single or joint life pension
•
if joint, reversionary pension of 100%.
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Defined Benefit Indexed Pension
Restricted to DBD members prior to 1 July 1998
Lifetime pension based on Trust Deed factors
Monthly pension indexed in line with the CPI each July
Spouse reversionary pension of 62.5%
No residual capital to estate (if not survived by a spouse).
You decide:
• whether to take part of the pension as a lump sum prior to
commencement.
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