Can I withdraw my super as a lump sum?

Question 

I am not yet 60 but have reached my preservation age and have retired. I would like to take out a lump sum from my superannuation to pay out the mortgage.

Can I do this now or do I have to wait until I turn 60?

Answer

Superannuation is a way of saving for your retirement. Your contributions accumulate over time and, usually, superannuation benefits are not available until you reach retirement age and have retired. This will be between ages 55 and 60, depending on your date of birth.

Date of birth                                   Preservation age
Before 1 July 1960                            55
1 July 1960 – 30 June 1961               56
1 July 1961 – 30 June 1962               57
1 July 1962 – 30 June 1963               58
1 July 1963 – 30 June 1964               59
From 1 July 1964                              60

As you have reached your preservation age and have retired, you can receive your superannuation as a lump sum payment, but there are different tax treatments depending on the amount.

If you access your super before age 60 you may be required to pay tax on withdrawals. You can withdraw tax-free up to the “low rate threshold”, currently $175,000 for the 2012/13 year, and $180,000 for 2012/14. This is a lifetime limit and is indexed annually. Any lump sums you withdraw before age 60 above this low rate threshold will be taxed at 16.5% (including Medicare Levy).

Once you reach age 60, any withdrawals – whether lump sum or pension – from a taxed super fund are tax-free. So it may be prudent to wait until after this age if you’d like to withdraw more than the low rate threshold as a lump sum.

So, while it looks like you can access a lump sum now, you need to understand that this may not necessarily be the best strategy for you.

It’s highly recommended that you seek financial advice before making a decision to withdraw any funds from your super.

Your credit files take on a new life

Did you know that credit reporting agencies are about to get greater access to your information?

While the Australian government says this will facilitate better assessment of consumer credit risk by creating greater transparency, the upshot is that the laws previously restricting what could be recorded are being eased.

Within this year, your credit provider will be expected to report on what type of credit facilities have been opened, your credit limits, and two entire years of repayment history.

This means your credit report will show if you have missed or been late with any repayments.

Under previous arrangements, a credit reporting agency could only include the following information in a credit file:

• payment on a credit contract at least 60 days overdue
• a cheque for $100 or more that has been dishonoured twice
• a bankruptcy order made against the individual
• whether a credit provider considers that the individual has committed ”a serious credit infringement”
• the individual’s current credit provider status, and
• details of recent credit inquiries.

The new scheme will allow credit reporting agencies to add the following information:

• the date a credit account was opened
• the type of each current credit account (mortgage, credit card, personal loan and so on)
• the date a credit account was closed
• the current limit of each open credit account, and
• repayment performance history for the previous two years.

The government expects that the move to a comprehensive credit reporting system would decrease the number of Australians who are financially over-committed and suffering from debt-related stress.

What’s on your file?

You still have a right to access your credit files and, with these changes taking place, it’s a good time to check your files and make sure there are no incorrect entries that could make it harder for you to get credit in future.

You will need to contact each of the credit reporting agencies to obtain a copy of your credit reports, which are generally required to be given free of charge. You will be asked to provide information to enable them to properly identify you.

This could include:

• your full name
• your address
• your date of birth
• your previous address
• your driver’s licence number.

The main credit reporting agencies in Australia are:

Veda Advantage

• Mail: Veda Advantage Public Access PO Box 964 North Sydney NSW 2059
• Phone: 1300 762 207 (or +61 2 92787900)
• Fax: 02 9278 7333
• Website: http://www.mycreditfile.com.au
• Email:assist.au@vedaadvantage.com

Dun & Bradstreet

• Mail: Public Access Centre Dun & Bradstreet (Australia) P/L PO Box 7405 St Kilda Road VIC 3004
• Phone: 1300 734 806
• Fax: 03 9828 3447
• Website: http://www.dnbcreditreport.com.au
• Email: PACAustral@dnb.com.au

Tasmanian Collection Service (for people living in Tasmania)

• Mail: GPO Box 814H Hobart TAS 7001
• Phone: 03 6213 5555
• Fax: 03 6234 2988
• Website: http://www.tascol.com.au/reports.htm
• Email: enquiries@tascol.com.au

Supercharge your mortgage

If you have a mortgage then the chances are you know what it feels like to be chained to your bank.

But, did you know that an offset account can save you interest on your home and can help you pay it off sooner? It can be a truly powerful tool if used correctly.

Simply put, an offset account is a separate account that’s linked to your mortgage account, and money sitting in that account offsets the interest charged to your loan. You would need to make sure that the interest rate on your mortgage is variable as it rarely applies to fixed home loan rates.

For example, if you have a loan of $300,000 and $50,000 sitting in an offset account, then you would be charged interest on the net balance of $250,000 only.

A more attractive scenario is to have your $300,000 mortgage, plus the same sitting in an offset account. You wouldn’t be charged any interest at all in this case.

Many offset accounts act like bank accounts where you can have a cheque book, you can withdraw cash from an ATM, plus have direct debits set up to pay your bills. You can redraw any amount you want, just like a normal bank account.

And the news gets even better. Because interest on your home loan is most probably calculated daily, any funds sitting in the offset will reduce the interest charges.

A quick way of estimating your annual savings starts by estimating the average balance in your offset for a year. Let’s say it’s $10,000. If your mortgage interest rate is 6%, then your saving for the year would be $600.

$10,000 x 6% = $600

If you have a principal and interest loan, your bank may still expect you to pay the same regular instalment based on the outstanding amount in your mortgage. In this case, a greater amount of your repayment will go towards paying down the principal of your loan, helping you to pay off your home loan sooner.

A $600 interest saving means that your principal will reduce by this same amount – helping you to reach the goal of paying off your home loan sooner.

If your loan is interest only, the net amount (mortgage less offset balance) will be used to calculate the interest payable, and this will reduce as the balance in your offset increases.

Importantly, you need to understand that the effect of an offset account would be the same  as if you had put extra funds directly into your mortgage.

So why bother? The advantage of an offset account is that you can make your spare cash work harder. Rather than sitting in a bank account earning 2 per cent or less, you can make it earn the equivalent of your mortgage interest rate.

While this is great news for your own home, beware of the tax implications if you are using an offset account for an investment property. If you withdraw funds from an offset account linked to an investment property to use for personal purposes other than another investment loan, then you lose the tax deductability for that amount. This is a mistake that cannot be undone.

Of course, speak to a tax accountant for more information based on your personal circumstances.