Should you put more money into super or your mortgage?

Contributing more money to super is not always your best option.

Contributing more money to super is not always your best option. Photo: Getty

Question one: Hi Craig, I am 66 and plan to work for two more years.

I have a PSS super fund of $450,000 and a mortgage of $170,000.

Should I put more money into my mortgage, or increase my super contribution to 10 per cent or leave it at 5 per cent?

I live in an old house that needs renovation and wish to upgrade my 25-year old car when I retire.

Would I still be eligible for a government pension when I withdraw 50 per cent of my super to pay for my renovation and a car?

I believe you are referring to the defined benefit PSS super account, which is very generous and is closed to new members.

This can provide you with a lump sum or a lifetime pension, or a combination of the two.

The default contribution is 5 per cent of your salary, but you can take it to a maximum of 10 per cent.

The higher your fortnightly rate, the higher your defined benefit is likely to be. It is the single best way to increase your PSS super benefit over your working life.

Given you are so close to retiring and it is such a generous scheme, I would look to maximise your contributions to PSS first.

However, you need also to be mindful of superannuation contribution caps.

If you have additional funds left over, you can direct those to your mortgage.

As your principal place of residence is not included in Centrelink’s asset or income test, using funds for a renovation may assist you in obtaining a larger age pension payment.

As an example, if you had $200,000 in your superannuation or bank account, this would be asset-tested and deemed under the income test, but if you took the $200,000 to renovate your home these funds would no longer be counted.

A car is treated as an asset by Centrelink, but does not count under the income test.

From what you have outlined, it sounds like you may be eligible for the age pension. Below are the asset test thresholds that are currently in place for the age pension.

*Pension is reduced by $3 per fortnight for each $1000 of assets over this threshold.

Note that if you take a partial lifetime pension from PSS, you may then fall under the income test rather than the asset test.

As you are approaching retirement, I suggest seeking personalised financial advice.

Question 2: I refer to your answer to the question on inherited shares, especially: “If the shares were held before September 19, 1985, then the beneficiary is said to have acquired the shares … at the price on the deceased’s death”. How does dividend reinvestment – both pre- and post-1985 – affect the cost base of the portfolio? And does the introduction of dividend imputation and the rebate thereof further affect things?

You are referring to my previous article where I covered this topic.

The original purchase of the shares and all dividends reinvested prior to September 19, 1985 are said to have been acquired by the beneficiary at the original owner’s date of death, and at the share price at the date of death.

Any dividends reinvested after that date keep the original cost base (price and date).

As mentioned in my previous article, no capital gains tax (CGT) is paid at the time of death, only when the shares are eventually sold by the beneficiary (the person who inherited the shares).

Dividend imputation does not affect CGT calculations; it only affects your income tax return each year that you own the shares.

Question 3: My son will be inheriting approximately $150,000 from his uncle’s estate. How can he put that into his super? He earns a wage in Australia and lives overseas.

He can make an after-tax (non-concessional) contribution to super so long as the fund has his tax file number (TFN). Normally, you can contribute a maximum of $110,000, but he could use the ‘bring forward rule’ and contribute up to $330,000 so long as his super balance is below $1,480,000.

The funds will be preserved until he reaches preservation age and retires or until he reaches age 65, regardless of where he is living.

Is he a resident for Australian taxation purposes?

If so, he could make a personal tax-deductible contribution (concessional contribution) of up to $27,500 (or even more using the carry forward rules).

However, I strongly recommend seeking tax advice on this first as the country he is residing in may have complex tax rules that could disadvantage him.

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. 

The New Daily is owned by Industry Super Holdings

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