Retirement is supposed to be the time you finally get to kick back, but for millions of Aussie retirees, a simple mistake is costing them billions. Many aren’t transitioning their superannuation savings to the tax-free retirement phase, missing out on significant financial gains.
The Superannuation Phase: Why Timing Matters
Okay, so here’s the deal: Australians with super accounts should move their savings from the accumulation phase to the retirement phase once they reach retirement age or meet other eligibility requirements. It’s a no-brainer, right? But for some reason, this transition doesn’t happen automatically, and it’s a huge missed opportunity. In the accumulation phase, your investment earnings are taxed at 15%, but in the retirement phase, those earnings can be tax-free (up to your transfer balance cap). Sounds great, right? That’s because it is!
Yet, research commissioned by HESTA (a superannuation fund) found that around 1.8 million retirees are still stuck in the accumulation phase when they should’ve already made the switch, reports Yahoo Finance. This error is costing them big time, to the tune of $2.46 billion last year alone. That’s money that could be sitting pretty in their pockets instead of being eaten up by taxes. And it doesn’t stop there—by continuing to miss this transition, retirees could lose out on even more in the future, potentially up to $5 billion annually by 2030.
A Simple Fix for a Massive Problem
The good news? There’s a pretty simple fix. HESTA has suggested a reform that would help superannuation funds actively guide their members through the transition process. This could include “soft defaults” that automatically move people into the retirement phase when they’re no longer making contributions. The goal would be to ensure that retirees are getting the maximum tax benefits from their super. HESTA’s outgoing CEO, Debby Blakey, has argued that this reform could put billions back into retirees’ pockets and reduce pressure on the age pension system, which, let’s be honest, could use all the help it can get.
Time for Change
At the end of the day, it’s all about making sure the system works for people, not against them. While it’s frustrating that so many retirees are missing out, there’s a clear opportunity to improve things with a small policy change. So, the next time you look at your super, make sure you’re in the right phase—and if you’re not, it might be time to make the switch. Your retirement income could be thanking you later.
