Ben Rossi, Principal - Wealth Management

Whenever I meet a new client, I will commonly hear that they hold many ‘truths' about super that they have learned from the media or friends.

And often they will be wrong, and would be extremely costly if followed by a client.

This is a list of the most common superannuation myths, and why they are incorrect:

MYTH - "You shouldn't start drawing a pension out of your superannuation until you retire."

Because we don't generally have to physically pay the annual tax bill for our superannuation fund, it can seem like there is no tax to pay. This is not true, and in the right circumstances, commencing to draw a pension can reduce the tax on your superannuation earnings from as high as 15%, down to Zero.

Put simply, if your super has assessable earnings of $100,000 in a year, then the tax saving could be $15,000 a year. And that's not for ONE year - it's every year.

MYTH - "Pensions are only tax free after age 60."

It's true that pensions are tax free after age 60. However, if structured properly, the tax on pension payments can be either very little (or even Nil) at any age. You don't have to wait for age 60 at all.

The exact amount of tax (if any) will depend on many factors, but careful structuring can usually produce a tax free (or substantially tax free) outcome.

MYTH - "If I draw a pension from my super, then I won't be able to deposit the money back in, and that will erode my savings."

There are completely separate rules for taking money out of super and putting money in to super.

For anyone up to age 75, you can do both at the same time. As long as you can satisfy
both sets of rules, then there is nothing stopping you taking money out and putting money in at the same time. In fact, this strategy works extremely well for those of eligible pension age who may cease work and recommence later.

MYTH - "If I commence a pension before I retire, the maximum I can take out is 10% per annum."

This is in fact not what the super regulations say at all. It is however a commonly accepted assumption that many become accustomed to as it is a regular example
utilised in the financial news.

For those eligible, who require more than 10% pa out of their superannuation savings, this opportunity does exist. Of course, the more you take out, the less you will have for the longer term. And there are few (if any) better savings vehicles than superannuation.

MYTH - "When I die, my super will be paid to my partner because I nominated them as my beneficiary in my will."

Superannuation is considered a ‘non-estate' asset and is therefore excluded from your will.

The trustee of your super fund holds the power to distribute the benefit in line with the trust deed on your death. As a member of the super fund you are able to nominate your beneficiaries via a written declaration to the trustees of the fund known as a ‘Binding Nomination', or you may choose to have your super funds paid to your estate.

Distribution of your Superannuation can also be effective for tax purposes. Super paid as a lump sum to your dependants (spouse, children) on your death is tax free. For non-dependants (such as adult children, other family), the superannuation lump
sum can be taxed at a rate of up to 16.5%.

MYTH - "Super is good, but I can't use it to buy a property using borrowed funds."

This was the case prior to 2007, but the rules have changed since then. In fact, the Tax Office provided clarification of the rules in 2010, to pave the way for using borrowed monies (commonly referred to as gearing) within the superannuation system.

Whilst this may seem a popular option, given many Australian's preference for property investment, there are very complex requirements and severe penalties and risks involved in getting it wrong. This type of investment should not be considered without professional financial, tax and legal advice.

MYTH - "I can't get more than 150K of after tax money into Super each year."

Strictly speaking, this is the case. However there are rules designed to benefit those seeking to boost their super savings in certain circumstances, such as:

• You may be able to contribute several years' portions at once (ie "bring forward" future years).
• You may be able to make contributions to your partners fund - the limit is a "per person" limit, contributions from partners or children can increase the amount of money going in to super.

Financial Planning Pty Ltd ABN 51 060 092 631 (WHKFP). This is an information service only and is not financial advice. WHK and WHKFP do not provide any warranty regarding the accuracy and completeness of information in this newsletter. All material contained in this newsletter is based on opinions, conclusions and forecasts that are reasonably held at the time this newsletter was compiled. WHK and WHKFP assume no obligation to update the material to reflect any changes.

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No action should be taken solely on the material contained in this newsletter as the information is of a general nature and does not take into account personal circumstances. Before acting on any material contained in this newsletter you should seek professional advice.

WHKFP is the holder of Australian Financial Services Licence number 238244. WHKFP and WHK are both WHK Group firms. Produced in January 2011. © Copyright 2011