The bad news is this strategy won't work for everyone, and if you started contributing to super after July 1, 1983 you might as well stop reading now. In 1983 the super tax rules changed, but there were grandfathering provisions for money already accumulated in super funds. This means many people who were working before 1983 have a pre-1983 component in their super that is taxed under the old, more attractive system, and a post-1983 component that is taxed under the new rules.

Paul Maddock, the general manager for technical services at MLC, says one of the cornerstones of financial planning is to review your super before retiring to see whether you can increase the pre-1983 component of your overall super savings so that you pay less tax on your retirement benefit.

How do I do that?
The amount of your super that is said to be "pre-1983" is based on the proportion of your superannuated working life that was spent before July 1, 1983. So if, for example, you started receiving super in July, 1977, 25 per cent of your "eligible service period" would have been pre-1983 in July this year (six years before 1983, 18 years after).

Maddock says even if you only accumulated a small amount of super during this period, it's the years you were getting it that count, not the dollar sums involved. That's important because only 5 per cent of your retirement benefit relating to pre-1983 super is taxed at your marginal tax rate. The rest is tax-free. For those who have pre-1983 service, he says, it's important to look at merging funds before retirement so that the pre-1983 proportion applies to all super money, not just part of it.

You've lost me. Can you give me an example of how that works?
Maddock says many people who've been working a long time have more than one super fund. For example, say you had an old super policy with just $10,000 in it. The fund was started in July 1965, so the pre-1983 component is 50 per cent. Your main super fund was started after 1983 and has accumulated $200,000.

Maddock says if you were to retire now and take benefits from both funds, you'd pay lump sum taxes of $16,482 $121 on the payout from the smaller fund and $16,361 on the payout from the main fund, which is all post-1983.

But if you were to merge the funds, that 50 per cent pre-1983 proportion would apply to all your accumulated savings, not just the $10,000 from the pre-1983 fund.

So, if you merged your funds before retiring, the tax payable on your benefit would fall to $2,546 a saving of almost $14,000.

How do I merge my funds? Do I have to keep the pre-1983 fund?
Maddock says you can merge your benefits into any complying super fund even a self-managed super fund. The only things you can't do are transfer to a non-complying fund or put the cash back into super if you've already taken it out.

If you're consolidating your benefits into a fund that is open to the public, chances are the fund will do all the hard work for you. You'll need to fill in a Transfer Authority giving the fund the right to roll over your money from the other funds. If that option isn't available, you'll need to notify the funds where your money is, that you want to transfer it to another fund, and set the ball rolling from that end.

Do I have to merge my funds now? Or can I wait until just before retirement?
Maddock says the timing of the merger isn't important, as the calculations on your pre-1983 component are done at retirement, not before. However, there's a good chance you'll save on fees by merging your funds and you'll certainly save on paperwork as you'll be getting just one set of statements each year.

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