14 Feb How to get more money into your superannuation if you’re over 65
If you’re over 65, your super fund can accept contributions only if you’ve worked at least 40 hours within 30 consecutive days in a financial year.
At this age it’s vital to remember how many hours you need to work to be able to make a contribution, writes John Wasiliev, who finds answers for your superannuation questions.
Q: I have a self-managed superannuation fund (SMSF) that is paying me an account-based pension from an account balance of $926,500. Within the next month I expect to receive about $875,000 from a personal injury insurance payment from an accident I had three years ago. As someone who is 67 and retired, I’d like to contribute all of this to my super. Is this possible? Can I start a pension from this? If so, how will this affect my $1.6 million pension limit? Jim
A: The entitlement you are asking about, Jim, is the right to make a personal injury insurance contribution into your super, in addition to what might usually be available, says Bryce Figot, special counsel with DBA Lawyers in Melbourne. This can be a valuable benefit as it can allow someone to contribute a significant personal injury payment into concessionally taxed super beyond usual contribution limits.
Unfortunately this entitlement may not be available to you because you are 67 and retired. As a consequence it would seem you will not have been gainfully employed on at least a part-time basis this financial year when you receive this payment.
Gainful employment on at least a part-time basis is required for someone your age. It involves working for at least 40 hours over a 30-day period during a financial year.
Adelaide private client adviser Peter Crump of AMP Advice agrees that contributions can be made to super funds only if appropriate age and employment conditions are met.
Before 65, all classes of contribution can be made to super, including structured settlement contributions (another way of describing personal injury payments).
After 65, the only contributions which can be made by (or for) a person who is no longer working are the newly legislated home downsizing contributions. Someone over 65 who meets the definition of being “employed” (working at least 40 hours in a 30-day period) can make personal non-concessional and concessional contributions as well as employer contributions.
A personal injury contribution to super is an entitlement that allows someone who is either under or over 65 and who satisfies the gainful employment test to contribute as much of a personal injury payment they receive into their super as a non-concessional contribution.
While the annual non-concessional contribution limit for someone who is over 65 and who satisfies the employment test is typically $100,000, where the contribution happens to be a personal injury payment there is no limit on how much can be contributed so long as you were eligible to make the contribution.
Someone who is able to make a personal injury contribution may well be able to start a pension worth more than the usual $1.6 million cap.
There is one aspect of the personal injury contribution rules that may be worth exploring further: your comment that the payment related to an accident three years ago. Figot says there might be some scope under a sub-regulation that allows a fund to accept a contribution if it related to a period when a member was under 65. You would need to raise the matter with the Australian Taxation Office given this assumption has not been tested.
Q: After recent comments I read about strategies to preserve capital in super, is it the case that if one shifts into pension mode, overall investment gains become tax-exempt and any mandatory pension withdrawn can be re-banked to an SMSF’s non-concessional account (mindful of the $100,000 annual cap)? Will this preserve capital until the pension is ultimately required for living expenses. I refer here to people over 65, still working and still making concessional contributions? Kerry
A: A person over 65 who is withdrawing a pension from their SMSF will only be able to contribute any pension payments back into an accumulation account as a non-concessional or after-tax amount if they have less than the $1.6 million transfer balance cap in their super and can satisfy the super work test.
The work test for someone over 65, says SuperConcepts executive manager Philip La Greca, stipulates that before your super fund can accept any contributions, you must have worked for at least 40 hours within 30 consecutive days in a financial year.
Where someone starts a pension from their super, any investment earnings will be added to member balances and apportioned between them. When an investment is sold, says La Greca, and a capital gain occurs, the tax calculation will depend on the mix of pension and accumulation accounts at that time.
If the capital gain occurs while the SMSF only has pension accounts, there will be no tax due. Where a fund has pension and accumulation accounts, a portion of any capital gain will be taxable.
As far as making non-concessional contributions to an SMSF that has started a pension, these can only be added to an accumulation account.