Things to watch for when you withdraw or roll over. Super Super – cashing out or rolling over If you ‘cash out’ or roll over your superannuation, you could be affected in a number of ways, including: W paying tax (if you’re under 60) W losing your insurance cover W falling short of your retirement goals, and W mistiming investment markets. Paying tax Generally, if you roll over your superannuation to another provider, you will not be taxed, but if you make a cash withdrawal from a superannuation fund, and if you’re under 60, you may have to pay tax. This withdrawal could also affect your eligibility for tax offsets and entitlements. Your financial adviser can help you identify possible ways to maximise your savings. If you’re 60 or over, lump sum withdrawals are tax free. Losing your insurance cover Many super funds offer insurance to members for Death, Death and Total & Permanent Disablement or Salary Continuance cover. If you cash out or transfer your super, your insurance cover may lapse. Even if you intend to renew it with a new provider, you will probably need to complete new application forms and arrange medical examinations. It is possible that your premiums will substantially increase, and in some cases you may be denied cover. Falling short of your retirement goals Superannuation is a tax-effective way to save for retirement over the long term due to the favourable tax treatment of superannuation savings. If you are 60 and over, all super benefits, both lump sum and pension, are tax free. If you make a cash withdrawal before you retire, you may not have enough for retirement and you may also lose any ‘compounding effects’ the lump sum may generate on your returns over the investment period. Mistiming investment markets If you are cashing out or transferring your super because of disappointing results, you may be leaving the fund at an inappropriate time. History suggests that although superannuation balances may fluctuate significantly in the short term due to adverse market movements, patience and discipline is usually rewarded over the longer term. Pension Allocated pension – cashing out or rolling over If you ‘cash out’ or roll over your allocated pension benefit, you could be affected in a number of ways, including: W paying lump sum tax (if you’re under 60) W losing other tax benefits (if you’re under 60), and W losing social security benefits. Paying lump sum tax If you’re under 60 and if you convert your pension into a lump sum, you may have to pay tax. A lump sum benefit paid from an allocated pension is a superannuation member benefit. If the benefit is made up of different components, these components may be taxed at different rates. If you’re 60 or over, lump sum withdrawals and pension income payments are tax free. Losing other tax benefits You could also lose some, or all, of the various tax offsets you may have been entitled to. Losing social security benefits When you change allocated pension providers or take an additional income payment, your eligibility for the Age Pension or other social security payments is re-assessed under the Income and Assets Tests. As a result of this re-assessment it is possible that your social security payments could be affected. Pensions commenced prior to 1 July 2007 For existing pensions commenced before 1 July 2007, the current ‘deductible amount’ rules continue to apply for tax purposes until a trigger event (ie commutation, death or reaching age 60) activates the proportioning rule. This has already occurred for those people who were 60 or over on 1 July 2007. Those people in pensions under age 60 may want to contact their adviser to see if triggering their pension is appropriate for them. Are you confident that you understand all the implications of making a withdrawal from your superannuation or allocated pension fund? Loss of insurance cover, paying tax and the inability to meet your retirement goals are just a few things to look out for. If you’re not sure of the implications of a cash withdrawal, or a rollover to another superannuation or allocated pension provider, read this flyer and talk to your financial adviser. Do you have all the information? Before you make a decision to withdraw, make sure you understand the effects on your personal financial situation. Your financial adviser can be invaluable in this process as they can review your situation and help you: W assess the effects of the new super rules W explain what may happen and discuss alternative options with you, and W assist you in balancing your short-term goals with your long-term retirement needs. Any questions? If you have any questions please contact your financial adviser or call Investor Services on 13 13 36, Monday to Friday, 8am to 7pm, Sydney time. Colonial First State Investments Limited ABN 98 002 348 352, Australian Financial Services Licence 232468. This document is not advice. It provides general information only and does not take into account your individual objectives, financial situation or needs. You should assess whether the information is appropriate for you and consider talking with your financial adviser before making an investment decision. Past performance is no indication of future performance. Information in this publication which 10173/FS1698/0707 is taken from sources other than Colonial First State is believed to be accurate. However, subject to any contrary provision in any applicable law, neither Colonial First State nor any of its related parties, their employees or directors, provides any warranty of accuracy or reliability in relation to such information or accepts any liability to any person who relies on it.