Inside or Outside Super? Strategies for High Net Worth Investors
In life, change is the constant. Our personal circumstances change, unexpected surprises crop up and our priorities shif...
In Australia, we’re fortunate to enjoy one of the longest life expectancies in the world. While we’re celebrating more birthdays, this also means our thinking around how we manage superannuation needs to shift. With the life expectancy of 80.6 years for men, and 83.8 years for women, boosting your balance and reaping the rewards of a savvy super strategy isn’t just something to support your older years—it’s funding roughly one third or more of your time on earth (and even longer for those who retire early).
This is why just about every financial advisor will tell you that superannuation will always be the key pillar in retirement planning. While this is equally true at Ulton Wealth, we also encourage our clients to view their superannuation through a slightly different lens.
It’s a myth that superannuation is solely an investment. It might seem a bold statement to make, but your superannuation is actually a tax structure—and one that has the potential to dramatically shift how you approach managing your wealth.
For our high net worth clients, evolving the way they think about super can have broad impacts on how they choose to invest in super and how they approach their overall wealth strategy.
But first, let’s look at super as a tax structure. In Australia, we have a range of different tax structures. Most high-earning individuals will be paying tax at a marginal rate of 47%, while companies pay slightly lower rates, at 25% or 30% depending on their activity. Super is taxed at a much lower rate again – just 15% during the accumulation phase, then a very attractive 0% in the pension phase.
When you start viewing super as a tax structure rather than an investment in itself, you can start to see it for what it is: a very attractive vehicle to hold long term assets. Within the super environment, your investment opportunities are almost limitless, depending on your fund type, which opens up an incredible range of possibilities for your investment portfolio and wealth diversification.
As advisors, we’re privileged to support our clients as they transition into retirement and reap the rewards of decades of hard work and financial discipline. During this transition period, one of the major sources of stress is the disappearance of the psychological security that comes with a regular paycheck or income stream. But this is where years of consistent contributions to your super account bear fruit. Once you’ve retired and reached that milestone birthday, your superannuation provides you with a regular income in a largely 0% tax environment—hard to beat.
The goal is to maximise your superannuation contributions in a way that supports your financial goals now and into the future, through strategies that reduce your current tax liabilities and boost your compounding super balance.
The intricacies of superannuation contributions can be a complex field to navigate.
Concessional contributions—your pre-tax contributions—are now capped at $30,000 per year. While it used to be possible to increase your contributions as you approached retirement, at a time when your mortgage is paid off and adult children place less demand on your finances, these caps have made it harder to compensate for periods of lower contributions.
For high-earning individuals, additional restrictions apply. If your combined income and concessional contributions tick over $250,000, you will have to pay an additional 15% on your super contributions under the Division 293 tax rules, taking your tax on these contributions to 30%. And while paying extra tax isn’t normally considered a desirable outcome, here the long-term benefits outweigh the initial sting.
Caps also apply to your non-concessional, post-tax contributions, though these are more generous at $120,000 in the 2024/2025 financial year.
At Ulton Wealth our superannuation strategy resembles a game of chess - we’re always thinking a few moves ahead to make sure you’re well placed to take advantage of the opportunities and mitigate the risks. Legislation around super is continually changing, and this is where having a trusted advisor is critical. We can provide clarity in complex super situations and keep you ahead of the game.
There’s a few strategies we like to use to maximise our clients' super contributions, securing the maximum benefit without breaching caps or missing other opportunities.
The first is closely managing your non-concessional contributions. There are occasions, such as an inheritance or the sale of a business or property, when your financial position allows you to contribute above the non-concessional cap. In these circumstances, you can access the bring-forward arrangement, which allows you to make extra non-concessional contributions without having to pay additional tax. The bring-forward arrangement allows you to access the equivalent of one or two years of your annual cap from future years, meaning you can make a contribution up to 2 or 3 times the annual cap. Of course, there are eligibility criteria and future implications, so it’s important to seek personalised advice.
Your total super balance also plays a role in planning additional contributions. If your total super balance is more than the 2024/2025 general transfer balance cap of $1.9million, your non-concessional contributions cap for the financial year would be $0. The balance transfer cap is indexed, and subject to change, so vigilance is key – if your total super balance is close to $1.9m, getting the timing of your contributions right can make all the difference in terms of how much you can contribute.
When it comes to our age, you might like to think it’s just a number, but it has significant financial implications when it comes to your super—even after you reach your preservation age.
From 67, you need to be able to satisfy a work test to make a personal tax deductible contribution. If you’re approaching 67 and transitioning to retirement, now is the time to be doing everything you can to maximise your deductible contributions before you blow out those birthday candles.
The other milestone birthday is 75. As well as being a significant number, this is also the time when you can no longer make any contributions to your superannuation. The only exception is a downsizer contribution from the sale of your primary residence, or an employer contribution, should you still be working.
Another perspective we offer our clients, particularly business owners, is to view your superannuation strategy as a lifecycle. Let’s take a look at this hypothetical client—let’s call her Jane.
Like many of us, after starting out in entry-level jobs Jane joined an industry super fund, progressing to a retail fund with more flexibility as her career progressed. After operating her own successful business for a number of years (and diligently contributing to her own super), Jane had the opportunity to purchase her business premises. Transitioning to a SMSF, Jane entered a limited recourse borrowing arrangement, allowing her to purchase the commercial property within her SMSF.
This is where our earlier chess analogy of working a few moves ahead comes into play. Jane was able to invest her own personal contributions as well as rental income into her SMSF, repaying the purchase debt after six years. She then used her personal contributions and rental income to further diversify her super.
Eventually, Jane sold the business and realised her property assets, before transitioning to a retail fund and receiving tax-free income through her superannuation pension—completing the super lifecycle.
Throughout, Jane has used her superannuation structure as a vehicle to support her financial goals, rather than simply viewing it as a pool of assets awaiting her retirement. The benefits of this small shift in thinking can be immense and far-reaching.
To this day, no client has ever told me on retirement that they regretted investing so much in their super. Being smart and strategic about how you use super to diversify your tax structure creates opportunities that may otherwise be out of reach. As the legislative environment for superannuation is incredibly complex and continually evolving, it’s essential to seek out personalised advice that suits your own circumstances. At Ulton Wealth, we provide tailored financial advisory services that keep pace with changing markets to deliver a financial pathway to your own goals.
To learn more about how we can help you find the right balance for your future, please get in touch with our wealth management team for a confidential discussion.
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