Pension in Aus

[cristel]

Can anyone give me an estimation of the Amount State pension Australian citizens receive ?

Cristel

[Guest Bronwyn]

I found this in the Centrelink website:-

http://www.centrelink.gov.au/internet/inte...o030_0703en.pdf

There are qualifying criteria, including a means test. The higher your other income and assets, the less pension you would get. The Government pension is not intended to support you 100%, but be a top-up to your own savings, although I believe you can live on it if you are very frugal and your house is paid for.

The Australian government is trying to encourage everyone to contribute to their Superannuations (own pension savings), because the country will not be able to support all the old-age pensioners a few decades from now....

There are Tax incentives, like salary-sacrificing pre-tax into your Superannuation.

Hope it helps.

Bronwyn

[Bob]

By the "State Pension", I assume you mean the pension ("Old Age Pension" or just simply the "Age Pension" as it's called nowadays) that Australians get on reaching the grand old age of 65.

As a youngster of 55, I am ages away from receiving it and last count it was around $13 000 for a single person and $19 500 for a couple per annum.

All government payments (e.g. Age Pension, Veteran's War Pension, Disabled Pension, etc) are paid fortnightly in to your bank account.

When you begin working in Australia, you'll get 9% over and above your gross salary / wage placed into a Superannuation scheme that is used to save up money for you when you choose to retire after the age of 60.

When you reach retirement age in a few decades' time, there will be so many people retiring that the Australian government (and every other Western government) won't be able to afford to pay you an Old Age Pension and you will have to pay for your lifestyle in old age mainly from savings that you will have built up over the next 30 years or so.

My advice . . . . forget about the Old Age Pension for yourself, personally.

To get one, the Australian gov't will make you jump thro all sorts of hoops and hurdles and it will only afford you a very "basic" existence, so start saving for retirement in your working years.

[Marlene]

By the "State Pension", I assume you mean the pension ("Old Age Pension" or just simply the "Age Pension" as it's called nowadays) that Australians get on reaching the grand old age of 65.

As a youngster of 55, I am ages away from receiving it and last count it was around $13 000 for a single person and $19 500 for a couple per annum.

All government payments (e.g. Age Pension, Veteran's War Pension, Disabled Pension, etc) are paid fortnightly in to your bank account.

When you begin working in Australia, you'll get 9% over and above your gross salary / wage placed into a Superannuation scheme that is used to save up money for you when you choose to retire after the age of 60.

When you reach retirement age in a few decades' time, there will be so many people retiring that the Australian government (and every other Western government) won't be able to afford to pay you an Old Age Pension and you will have to pay for your lifestyle in old age mainly from savings that you will have built up over the next 30 years or so.

My advice . . . . forget about the Old Age Pension for yourself, personally.

To get one, the Australian gov't will make you jump thro all sorts of hoops and hurdles and it will only afford you a very "basic" existence, so start saving for retirement in your working years.

Should one then take out something else over and above the "9%" which is already deducted from your salary? Or could you increase your monthly contribution?

[Mara]

Hi Marlene

The 9% is not deducted from your salary, it is usually in addition to your salary and paid by your employer. You can also contribute to your super, good idea.

[Marlene]

Hi Marlene

The 9% is not deducted from your salary, it is usually in addition to your salary and paid by your employer. You can also contribute to your super, good idea.

So the option is there to contribute more than your 9% the employer is giving...or would you advise taking out a seperate pension fund or whatever?

[Mara]

Hi Marlene

If it was me, I would rather pay extra into my superfund than take out another pension, or you will be paying two lots of administration fees. Just make sure you go with one of the industry superfunds, like Australian Super or Hesta, the fees are definitely a lot less than the superfunds offered by banks and insurance companies.

Your employer will usually do what they call salary sacrifice, say you get $800 per week, and you decide you want to pay an extra $50 into your super, then they deduct that from the $800 before they calculate your tax. When the extra amount gets to your Superannuation they will deduct 15% off it to pay to the tax man, so you pay less tax on that portion.

[Pippa]

Dear Cristel,

I've moved your post to a more suitable subforum.

Lovies, Pippa! X

[Bob]

If you make voluntary contributions into your Superannuation scheme . . . the same one as chosen by you for your employer to put your 9% of wages into . . . you get $1.50 for every $1 for the first one thousand dollars that you contribute out of your after tax wages.

If you "Salary sacrifice" . . . that is, if you take say a thousand dollars out of your pay and don't pay any income tax on it . . . it won't attract the Government Co-contribution of $1.50 for every $1 you put into, because salary sacrifice isn't seen as you personally contributing.

It is seen as your employer contributing, therefore you cannot get the government co-contribution.

I could be wrong on that. If so, perhaps somebody like Mara would like to point it out, but I've found after tax contributions ("deductible" contributions) give a better interest rate and pay out in the long term if you're only paying the average 30% marginal income tax rate (on incomes between $30 000 up to $80 000) that 80% of Australian workers are on.

Edited May 21, 2007 by Bob

[woodag]

If you make voluntary contributions into your Superannuation scheme . . . the same one as chosen by you for your employer to put your 9% of wages into . . . you get $1.50 for every $1 for the first one thousand dollars that you contribute out of your after tax wages.

If you "Salary sacrifice" . . . that is, if you take say a thousand dollars out of your pay and don't pay any income tax on it . . . it won't attract the Government Co-contribution of $1.50 for every $1 you put into, because salary sacrifice isn't seen as you personally contributing.

It is seen as your employer contributing, therefore you cannot get the government co-contribution.

I could be wrong on that.

. . .

As far as I know that is correct, but it is worth saying that there are other reasons why you may not be eligible for the co-contribution:

. You have to be employed - more than 10% of your income has to come from paid employment.

. As your income increases over $28,000 p.a., the co-contribution decreases, cutting out all together at $58,000 p.a.

. You have to be not older than 70 years of age, and

. Not on a temporary resident visa.

[Marlene]

So does this mean if I'm on a 457 visa, eran mora than 58 000 per year, I'm not eligible for "salary sacrifice"?

Could I still prefer to add money to the company scheme as part of my pension fund, instead of taking out a seperate pension fund?

[Bob]

No Marlene,

Some people earning a salary or wage from an employer in Australia may prefer to get a tax break.

Say, for instance, you are earning $100 000 a year.

Ordinarily, you will pay income tax on the 100 grand . . . . O.K.

However, in life we all have payments to make . . . mortgages, private school fees for the kids, private health insurance premiums to pay, contributions into our superannuation to bump up the overall figure you can get out on retirement, etc. etc.

Some folk choose to take a "sacrifice" out of their pay / salary and get the boss to "deduct" the school fees, private health payments, the mortgage payments to your bank, your super contributions, etc out of their pay before any income tax has been paid

You get the nett sum

So . . . if you earn 100 grand and, in the year, you might pay

15 grand in mortgage repayments to your bank

5 grand in private school fees,

3 grand private health premiums

you voluntarily make a 7 grand contribution into your super scheme

= $30 000 of "payments"

your boss will give you a salary of $70 000 and the company will make all these "payments" on your behalf.

You then pay income tax on only $70 000 instead of $100 000

. . . . clear as mud ??

That is "Salary Sacrifice"

Of course, the Treasurer cottoned onto the idea also, and charges the company a 15% "Fringe Benefits Tax" on all these fringe benefits "payments".

So. . . . if you salary sacrifice $7 000 a year, say, into your super, 15% of it will be taxed as a "fringe benefit" and only $5 950 will end up in your Superannuation account for your retirement.

Also, any interest earnt on that $5 950 will attract a 15% tax and you pay another 15% "contributions tax" when you come to take it all out on retirement . . . . .

So . . . . it might be just as financially beneficial to just pay your 30% income tax on your salary in the first place and plonk the after tax amount in the Super where it will attract tax-free interest over the years and you're able to get your pinkies on the whole amount when you retire.

Now . . . . still clear as mud ?

[Marlene]

Yep, still confused, but less so than to begin with...ha-ha! I think to make it easier, we will still add onto out pension-fund the company is paying, but dump it in there after tax deductions.

[woodag]

Yep, still confused, but less so than to begin with...ha-ha! I think to make it easier, we will still add onto out pension-fund the company is paying, but dump it in there after tax deductions.

Marlene,

Sorry for confusing you. As Bob explained the $58,000 limit does not relate to "salary sacrifice". Where I mentioned the $58,000 I was talking about what is called "co-contribution" - that is where the government throws in some extra, up to $1500 p.a. if you contribute up to $1000 yourself. It is not often that you can get something "for nothing", but unfortunately there are some restrictions as I mentioned.

There is nothing to stop you making both pre-tax (salary sacrifice) and after-tax contributions. In fact, if the only reason that you are not eligible for the co-contribution is that your assessable income is over $58,000, then you might be able to salary sacrifice enough to get you below $58,0000. I'm not saying you should try to do that - you would have to be able to live on what is left over, and really want to contribute so much to superannuation in the first place. You might also run into the new contribution limits that will apply from July this year.

[woodag]

. . .

[so. . . . if you salary sacrifice $7 000 a year, say, into your super, 15% of it will be taxed as a "fringe benefit" and only $5 950 will end up in your Superannuation account for your retirement.

Bob,

Are you sure about that? Salary sacrifice super contributions will be subject to 15% contribution tax, but I don't think there is any FBT involved. There used to be the superannuation surcharge that applied to people on higher incomes, but that was abolished from July 2005.

[Bob]

Bob,

Are you sure about that? Salary sacrifice super contributions will be subject to 15% contribution tax, but I don't think there is any FBT involved. There used to be the superannuation surcharge that applied to people on higher incomes, but that was abolished from July 2005.

Yup . . . pretty sure.

Ginnie, my wife, started to salary sacrifice some of her pay so that it went into her Super.

When we looked at her superannuation statement later in the year, we found that only 85% of the amount she'd sacrificed had actually ended up in her Super . . . . and the interest on that amount was not tax free, either!

Nor was the final pay out when she came to collect in years to come, so we found out.

She only works part-time and has a salary for three days a week of $45 000, so is paying 30c in the dollar income tax on every dollar over and above $30 000 (from 1st July), so is in the "30% marginal income tax" bracket. . . . . not a princely sum to have to pay before parting with money destined to keep you afloat later on in life.

For the benefit of all, Australians pay income tax on the following sums from 1st July 2007

up to $6 000 is income tax free

then on every dollar over $6 000 to $30 000 you pay 15% in income tax on those dollars over and above the tax free threshold of $6 000 up to $30 000

once over $30 000 you pay 30% in income tax on every dollar over and above $30 000 up to $80 000

then once over $80 000 you pay 40% for those dollars over and above $80 000 and up to $150 000

then it's 45 % on those dollars over and above $150 000 in the financial year (1st July to 30th June following year)

Obviously, if you only earn up to $30 000 and are only paying 15 cents in the dollar on income over $6 000 AND you are salary sacrificing, you are not getting ANY benefit out of it . . . . rather, you are actually paying MORE tax over the years on the amount sacrificed.

Edited May 23, 2007 by Bob

[woodag]

. . .

When we looked at her superannuation statement later in the year, we found that only 85% of the amount she'd sacrificed had actually ended up in her Super

That sounds right - salary sacrifice contributions are included in the taxable income of the super fund and taxed at 15%. That is not "fringe benefit tax" though, it is commonly (not quite correctly), called "contribution tax". Not that it matters what you call it, it still has to be paid.

. . . . and the interest on that amount was not tax free, either!

Not tax free, but interest earned outside of super would not have been tax free either.

Nor was the final pay out when she came to collect in years to come, so we found out.

Now that is a complicated story! However, with the super rules that will apply from July, the final pay out will be tax free if taken after age 60.

At least that is the position now, but the polls may prove to be correct, and the federal opposition may get control at the next election. They may then decide to change the super laws yet again. Legislative risk - one of the big problems with superannuation.