1. Superannuation Update Romano Turco Business Development Manager ING Australia USQ Corporate Club Breakfast Workshop 23 rd November 2006

2. General advice warning “This presentation may contain some general advice. This means that individual objectives, circumstances and needs will not be considered in providing this advice. It is not appropriate for me to provide personal advice in this forum.”

3. Session outline Contributions caps Cap exemptions Salary sacrificing Government co-contribution Life insurance through super Transition to Retirement Pensions

4. Contributions caps

5. Contribution types There are two broad contribution categories –Taxable contributions –Post-tax contributions (also known as undeducted contributions) The Government has proposed caps on contributions, with breaches of the caps incurring significant taxation penalties

6. Taxable contributions cap Taxable contributions include –Superannuation guarantee payments –Salary sacrifice employer contributions –Other employer contributions –Personal contributions claimed as a personal tax deduction Self-employed Eligible persons

7. Taxable contributions cap Proposal effective 1 July 2007 Replaces age based deduction limits Annual cap of $50,000 (indexed) per person –If aged 50 or more, a transitional limit of $100,000 applies up to and including 2011/12 10% income rule applies for self-employed or other eligible persons looking to claim a personal tax deduction Penalties apply for breaching

8. Taxable contributions cap Surplus taxable contributions ‘effectively’ taxed at highest MTR –31.5% personal tax liability on top of 15% contributions tax –May request release of super to pay for tax liability –ATO discretion available for inadvertent breaches Surplus contributions also counts towards post-tax contributions limits

9. Post-tax contributions caps * Can bring forward next two years entitlements if under age 65 (3-year averaging) 10 May 2006 No limit $1,000,000 limit $150,000 per financial year limit* 1 July 2007

10. Post-tax contributions caps No averaging from age 65 to under age 75 –Work test needs to be met to contribute $150,000 Annual cap is 3 times taxable contributions cap (i.e. $150,000 in 2007/08) Government co-contribution does not count Surplus contributions taxed at highest MTR –Personal tax liability –Must nominate super to pay for tax liability? –ATO discretion available for inadvertent breaches –Opportunity to withdraw before 30 June 2007 without penalty

11. 3-year averaging Year Scenario AScenario BScenario CScenario D 1- 2$450,000 3 - 4 - $150,000 $450,000 - $350,000 - $100,000 $150,000 (or up to $450,000) $450,000 - $150,000 (or up to $450,000) Annual limit works on a ‘use it or lose it’ basis

12. Cap exemptions

13. Post-tax contributions caps Eligible small business owners qualify for a $1,000,000 (indexed) cap exemption on sale proceeds –Effective 10 May 2006 –CGT retirement exemption (up to $500,000) –15-year retirement exemption Settlement proceeds for injury resulting in permanent disablement also exempt –Definition of ‘settlement’ or ‘permanent disablement’ unknown?

14. Salary sacrificing

15. Resident income tax scales Taxable incomeMarginal tax rate $0 – $6,0000% $6,001 – $25,00015% $25,000 – $75,00030% $75,001 – $150,00040% $150,001 +45% From 2006/07 financial year

16. Salary sacrificing to super Forgoing salary for superannuation contributions –Forgone salary not counted as assessable income 15% contributions tax applies if within limits Possible employer and award restrictions Agreement must be in place with employer Make sure no reduction in employee entitlements (such as superannuation guarantee)

17. A super investment vehicle Salary v. salary sacrifice to super Personal marginal tax rates

18. Example - salary sacrificing $1,000 pa salary sacrificed into super over 20 years Australian equities portfolio –3% pa income (20% franking) –5% pa growth Benefits shown net of all taxes –No taxes on withdrawal of super benefits (based on 1 July 2007 proposal to make super benefits tax-free from age 60)

19. Salary sacrificing - 31.5% MTR An extra 31%

20. Salary sacrificing - 41.5% MTR An extra 63%

21. Salary sacrificing - 46.5% MTR An extra 84%

22. Government Co-contribution

23. Co-payment from Government up to $1,500 Only applies to personal undeducted contributions 10% employment income rule applies Self-employed may qualify from 1 July 2007 –10% business income rule Salary sacrificing may help employee increase entitlement

24. Government Co-contribution 150% Co- contribution ratio Cuts out at $58,000 income (indexed)

25. Government Co-contribution Qualification criteria includes –10% employment income rule (or 10% business income rule from 1 July 2007) –Submitting an income tax return –Personal undeducted contributions made –Under age 71 –Not a temporary resident

26. Life insurance through super

27. Death cover - tax SIS Who can the trustee pay a death benefit to? * Tax Who qualifies for tax-free lump sum death benefits? Dependants Spouse - Child Financial dependant Interdependant * A deceased’s legal personal representative (LPR) can also be paid Spouse Ex-spouse Child under 18 Financial dependant Interdependant

28. Death cover - tax ComponentDependantNon-dependant Pre 1983 -5% at MTR Post 1983 (taxed) -16.5% max Post 1983 (untaxed) -31.5% max Excessive 39.5% and/or 46.5% ComponentDependantNon-dependant Taxable Taxable (untaxed) Current lump sum tax Proposed 1 July 2007 lump sum tax - 16.5% max - 31.5% max

29. Direction of proceeds May direct trustee on who will receive death benefits through a death benefit nomination 1. Binding nomination What kind of binding nomination is it? Will it expire? Can member bind trustee on form of death benefit? 2. Non-binding nomination Will it lapse? Will the trustee have discretion? Who gets the proceeds if there is no valid nomination in place?

30. Why a Transition to Retirement pension? Supplements lost income when scaling back on work hours Provides additional cash –Reduce non-deductible debt –Help self-employed during difficult times –Fund pre retirement upgrades (car, renovations, furniture) –Fund leisure activities Replaces sacrificed salary with a rebatable or tax-free income stream

31. Case study John & Linda

32. Case study - John & Linda John (56)Linda (60) Salary $75,000 (plus SG) $0 SG $6,750$0 Other income $3,000$10,000 Linda has no intention to return to work John wishes to establish a salary sacrifice and TTR pension strategy (10% maximum payment)

33. Case study - John & Linda Take home pay Current position Scenario

34. Case study - John & Linda John salary sacrifices $50,000 into super –$42,500 net of contributions tax Assume SG remains $6,750 Annual taxable contributions limit –1 July 2007 to 30 June 2012: $100,000 –1 July 2013: $60,000 (4% pa AWOTE increases) John commences a TTR pension to supplement the drop in his salary

35. Case study - John & Linda Take home pay Current positionSS & $42,500 pension (John) Scenario (up $1,738)

36. Case study - John & Linda Is Linda better off establishing the pension instead (disregard tax-free pension earnings)? Can contributions splitting help? Yes, as the pension payments will be tax-free (from 1 July 2007) and no 10% maximum payment applies. Not now as Linda is permanently retired. However, a carefully implemented medium-to-long term contributions splitting strategy may be vital in the lead up to retirement to ensure individuals like Linda have enough super to establish their pension.

37. Case study - John & Linda Salary sacrificing reduces assessable income as defined under taxation law –Low income tax offset –Mature age worker tax offset (age 55) –Senior Australians tax offset (pension age) –Commonwealth Seniors Health Card (pension age)

38. Session outline Contributions caps Cap exemptions Salary sacrificing Government co-contribution Life insurance through super Transition to Retirement Pensions

39. General advice warning The information that you have been provided with is only intended to be general financial advice. This means that your objectives, financial situation or needs have not been considered in the preparation of this advice. Before acting on this advice, you should give consideration to the appropriateness of the advice for you. You should seek appropriate financial planning advice. You should consider any relevant Product Disclosure Statement before making any decision about whether to acquire any product. Product Disclosure Statements are available from the relevant product provider. ING Product Disclosure Statements are available on request by calling ING or by visiting our website, www.ing.com.au.