1.3m Australians may be paying tax they don’t have to
More than 1 million older Australians may be paying extra tax on their superannuation even though they are eligible for a tax-free pension account.
Money held in super is taxed at 15 per while people are working and saving – the so-called accumulation phase – but once people qualify for retirement and move into the pension phase, there is no tax.
Yet around 1.3 million super accounts worth $225 billion belonging to people aged over 65 have not been switched over, according to annuities provider Challenger.
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“Many people are left in the accumulation phase paying unnecessary taxes simply because they are not aware of the options available to enjoy a tax-free income in retirement,” said Aaron Minney, the head of retirement income research at Challenger.
“While there are some valid reasons, a lack of awareness and the focus on the nest egg of super mean that many people don’t know when they should crack their egg open.
“And the fact that they don’t see the tax directly – it is paid by the super fund – means many would be unaware that their retirement savings are being taxed.”
Roughly the same number of accounts – 1.4 million holding $400 billion – are pension phase and therefore tax-free.
“In accumulation you pay 15 per cent tax and in retirement you pay zero, so people are working against themselves,” Australian Retirement Trust chief executive Bernard Reilly said.
“People are doing themselves harm by not moving to retirement phase.”
Mr Reilly said there might be a number of reasons that people over 65 had not started a tax-free pension, the most obvious being they were still working. The latest figures show the average age of retirement has increased from 53.5 to
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