Why you shouldn't put it all in super

The days of pumping all your savings into your superannuation fund to receive a tax-free pension are over.

The federal budget will change the tax regime for older, wealthier Australians with high balances from July 1, 2017.

If the legislation is passed, the best strategy will be to have a multiple-portfolio approach, according to Rice Warner's latest report.

For decades the investment mantra from financial planners for high income earners has been to put all their clients' money in super.

Thanks to the tax benefits it was the most generous of all savings vehicles. But this straightforward, single-minded strategy needs a rethink.

Rice Warner says a retiree over the super preservation age would now be better served by having at least three portfolios: an account-based pension (or a transition to retirement pension if they are still working); a super accumulation account; and at least one non-super portfolio. It says each one can take advantage of the different tax regimes.

"There seems little doubt that more retirees in future will hold multiple super and non-super portfolios using strategies to ensure the portfolios operate smoothly together.

The degree of possible flexibility and innovation from such an approach may surprise some retirees," says the report.

What will this look like?

Pension account:

For (non-working) retirees aged over 56 with funds in a pension, the investment earnings are tax free.

When they hit 60, the income is also tax free.

But under the new rules, amounts above $1.6 million will have to be swept into an accumulation account or out of super.

Accumulation account:

The amount over $1.6 million that goes into the accumulation fund will be taxed at 15%.

But Rice Warner says that accumulation funds are still attractive because there is no ceiling on how much you can hold in them. You can contribute up to the age of 74 without meeting a work test.

"Retirees can potentially keep building up their accumulation accounts into old age and would be able to make concessional contributions of up to $25,000 by claiming personal tax deductions against their non-super investment income," explains Rice Warner.

Non-super investments:

Retirees can have an investment with no onerous rules by placing it outside super.

When you reach 65, take advantage of the standard $18,200 tax-free threshold, the senior Australians and pensioners tax offset (SAPTO) and the low income tax offset (LITO).

This means that an eligible couple can receive an income of up to $57,948 without paying income tax.

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