Question 1

• Hi Craig, in a previous response about the issue of changing super funds, it might be worthwhile to point out that any insurance coverage (e.g. death/TPD) does not automatically transfer but is generally re-assessed by underwriters. Policies can be different too. When I looked at changing funds, my death/TPD premium would have been around $400 per month rather than $100. This may be important for some people as it was for me (I didn’t switch). Regards, Lang

This is a great point and can’t be overstated.

When people are looking to rollover super funds, they often look for funds with low fees and/or strong performance history. And while these are very important features you should not overlook the importance of insurance.

The premiums (cost) of holding insurance cover can be significantly different between funds. The premiums will then eat into your retirement savings.

As you have said the policy definitions can also be different, some offer easier definitions to be able to lodge a successful claim.

The ability to apply for insurance and any underwriting can take time and may not be straightforward. Many funds do now offer an insurance transfer function, from fund to fund, which may be handy for some people, although you may still have to answer a small number of health-related questions before being eligible. You should check this out before rolling over.

If you do have any underlying health conditions, or if you believe you may struggle to get new cover for whatever reason, do not rollover/move your current super fund until you have obtained new cover elsewhere.

In some instances, it may be worthwhile to have two super accounts if one has your insurance policies that you are happy with and would like to hold onto. You can then keep a separate super fund with the bulk of your retirement savings if that fund is a strong investment performer.

Question 2

• Regarding capital gains tax (CGT) – I retired back in 2015 aged 60 and I’m applying for the aged pension aged 67. I rented out my residential property when purchased (November 2008), and was unaware of the six-year rule. I’m now living in my property and have no other properties; my income will be the age pension as I am not working and have held onto my property until retirement. Can you tell me approximately what CGT I would need to pay should I decide to downsize and sell my property?

Firstly, in relation to the ‘six-year rule’, in certain circumstances a person can choose to treat a home as their main residence for tax even though they have ceased to use it as the main residence. This allows a capital gains exemption to continue to apply to the home.

The continuing exemption cannot apply to a period before a home first becomes a person’s main residence (e.g. the home is rented out before you first live in it). A person must first live in the home and then move out.

Coming to your situation, if your home was not your main residence during the whole period of ownership, a partial exemption of capital gains is available.

The portion of the capital gain which is taxable is calculated as follows:

Capital gain (sale price, less purchase price and expenses) x number of days when home was NOT main residence/total number of days home owned.

For example, let’s say your capital gain on the home was $500,000 and you lived in the home as your main residence for 50 per cent of the time. Then $250,000 would be your gross capital gain.

If the property was owned for more than 12 months, then the 50 per cent discount may also apply. Therefore, the net capital gain is $125,000 and this would then be added to your income tax return.

The above is a very simplistic example. I would recommend seeking tax advice to not only help with the calculations, but to assist in maximising any deductions.

 Question 3

• Hello, I’m a single, 66-year-old woman who retired about a year ago and now volunteers two days per week to receive the Jobseeker payment. My father died last year and I will soon be receiving some money from his estate (maybe around $25k). I’m wondering if I can pay this into super? Also, to date I haven’t had to set up an income stream from my super as I’ve been living on savings. At what point does it become better to set up an income stream from super, rather than have it all in accumulation phase? Thanks, Julie

Yes, you can contribute the funds to super.

As you are under the age for the age pension all money within the accumulation phase would not be counted by Centrelink under the income or asset test.

Once you reach the age for the age pension (67), or if you convert the funds to an income stream, they will then be assessed by Centrelink.

So long as you can continue to live off your savings and Jobseeker, it may be best to wait until you are 67 to set up an income stream with your super.

At that point funds will be counted by Centrelink regardless as to whether they are in accumulation or pension. Once you convert them to a pension not only will they provide a regular income stream on top of any age pension, but all payments and earnings will then be tax free.

Craig Sankey is a licensed financial adviser and head of Technical Services & Advice Enablement at Industry Fund Services

Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.

Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives.

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