People come to see me generally because they’re anxious and apprehensive about whether they’ll be able to afford retirement. I like them to leave smiling – my goal is to help clients plan to retain their current lifestyle in retirement.Jack LaidsaarFinancial Planner SSFS
Public Sector Superannuation Scheme (PSS)
Optimising your contributions?
As a member of PSS you can contribute between 2% and 10% of your salary into your super scheme. The level of your personal contributions is really important as your benefit, when you come to exit the scheme, will be calculated based on the formula:
Benefit amount = final average salary (FAS) x accrued benefit multiple.
The growth of your ‘accrued benefit multiple’ will depend on your rate of contribution and your length of scheme membership. The more you contribute from your salary and the longer you contribute for, the higher your accrued benefit multiple and the greater your PSS benefit will be. This is up to a maximum benefit limit, which will vary according to your salary.
Whether you reach your maximum benefit, or not, will depend on your contribution rate over the years. That’s why you need to ensure you’re contributing at the right level now in order to maximise your final benefit payment when you leave full-time work.
As the experts in your scheme choices, your financial planning team at SSFS can design an appropriate strategy that helps you optimise your position based on your individual circumstances and your current and future needs and objectives. You can meet with one of our professional financial planners without cost or obligation. At SSFS product and advice fees apply only when you decide to invest and partner with us on an ongoing basis.
So give your member service team a call on 1800 620 305 and make sure you’re maximising the opportunities now to deliver the lifestyle you want in the future.
Saving tax on your final benefit
When you retire and access your final PSS benefit, you generally have the option of:
- taking it as a lump sum;
- converting it into a lifetime pension; or
- taking a combination of lump sum and pension.
As your benefit is made up of taxed and untaxed components, if you elect to take a combination of lump sum and pension, you can choose whether the majority of the untaxed element is ‘streamed’ to your lump sum or to your pension. The choice you make will have very different implications on the amount of tax you pay.
If you decide to have your untaxed element streamed to your lump sum, then a tax of at least 15% will be applied when you receive your benefit. If you elect to have your untaxed element streamed to your pension, then the portion of your pension which is made up of the untaxed element will be subject your Marginal Tax Rate (MTR). If you’re over 60, you’ll also receive a 10% tax rebate depending on the size of your pension, and the amount which is taxable - so you may end up paying very little or no tax on your pension income.
So which is the better option? Is it to stream the majority of untaxed element into the pension to minimise tax in the short-term, or is it to stream the majority of the untaxed element into the lump sum and minimise tax on the pension? The answer isn’t a simple one and will depend on your individual circumstances and your current and future needs and objectives.
Deciding whether to take your PSS benefit as a lump sum or pension is an important lifestyle decision and you need to understand the short and long-term tax implications. That’s why it’s important you speak with your financial planning team at SSFS to discuss the option that’s right for you.
Give your member service team a call on 1800 620 305 and speak to the experts in your scheme choices.
Concessional Contributions Cap for PSS Members
As a PSS member, there are special rules which apply to your super fund. One of these rules is that your personal contributions can only be made as after-tax contributions. As a result, only your employer contributions - which form part of the productivity component of your benefit - are counted towards your concessional (or pre-tax) contributions cap.
The employer contribution rates are calculated based on your fortnightly salary. The following rates apply from
|$2,157.33 - $3,475.32||3% of salary|
|$3,475.33 - $5,212.99||$104.26|
|≥ $5,213||2% of salary|
If you are making any further pre-tax contributions (also known as salary sacrifice) to another super fund, you will need to keep the above amounts in mind in order to stay below the concessional contributions cap.
For the 2014-2015 financial year the cap is $30,000, unless you were age 49 or older on 30 June 2014, in which case it is $35,000.
Joan, age 55, is a PSS member earning $3,600 per fortnight. Her employer concessional contributions are $104.26 per fortnight or $2,710.76 per annum. Joan can therefore salary sacrifice up to $32,289.24 pa to another super fund in a tax effective manner.
|Concessional Contribution Cap:||$35,000.00 pa|
|Employer Contribution:||$2,710.76 pa|
|Available Salary Sacrifice Contributions:||$32,289.24 pa|
Should Joan exceed the cap limit of $35,000 her exess contributions could be refunded and will be taxed at her marginal tax rate plus an interest charge.
See Building Your Wealth for more information on the concessional contributions cap.
It’s important you speak with your financial planning team at SSFS to make sure you’re maximising the opportunities which come from being a CSS or PSS scheme member. Find out more by calling 1800 620 305 or send us an email.