2014 End of year Superannuation Strategies

imagesEnd of year superannuation strategies

The lead up to the end of the financial year is an opportune time to review your financial situation and avoid the last minute rush. We can help you with a number of strategies that can improve your financial position including the potential to reduce tax and take advantage of the concessional superannuation environment.

Here are some super strategies worth considering.    

Superannuation co-contribution is a government incentive to help low income earners build their superannuation balances. If you earn less than $48,516 (2013/14) and make personal contributions to super you may be eligible for up to $500. The amount depends upon your income with the government contributing 50 cents for each dollar you contribute, up to a maximum of $500. 


Personal deductible superannuation contributions is a helpful strategy for eligible individuals as contributions are generally taxed at a concessional rate of 15% compared to a higher marginal rate. This strategy can be particularly helpful if you have sold an asset during the year and realised a significant capital gain, as you may also be able to reduce the any personal income tax been payable on the capital gain.

Generally, this strategy can be implemented by the self-employed, retirees and employees whose employment ‘income’ is less than 10% of their total ‘income’.


Super Salary sacrifice involves an agreement between an employee and an employer to forgo a portion of salary in exchange for payment as a super contribution. The attraction of this strategy is ‘swapping’ a higher marginal tax rate for the concessional rate of 15% that is generally charged on super contributions.


If you’re due for a pay rise or an end-of-year bonus, you may be able to salary sacrifice this into super. Also if you are still within your concessional contributions cap (see important note below) you may be able to increase your salary sacrifice contributions to take full advantage of this concession.   

Important note: the ‘concessional contributions cap’ limits the amount of concessional contributions (including salary sacrifice and personal deductible) before tax consequences may apply. The concessional contributions cap for 2013/14 is $25,000 if you are under 60, or $35,000 if you are 59 or older as at 30 June 2014.      


Non-concessional contributions often called ‘after-tax’ contributions are another way to increase investments in the concessionally taxed super environment.

The non-concessional contributions cap is $150,000 (2013/14). However, if you are under age 65 at any time during the financial year, you can bring forward the next two years’ non-concessional contributions caps to allow larger contributions to be made (providing you haven’t already done so in the two previous financial years). The ‘bring-forward’ cap is $450,000 and is automatically triggered when your after-tax contributions are more than $150,000 (2013/14).

The non-concessional contributions and ‘bring-forward’ caps have been increased for 2014/15 to $180,000 and $540,000 respectively. A strategy of triggering the ‘bring forward’ in 2014/15 rather than this financial year may enable increased amounts to be contributed to superannuation over time. Timing of contributions including when to trigger the bring-forward is an important consideration to optimise contribution levels and avoid tax penalties. 


Spouse contribution provisions allow taxpayers to make after tax super contributions to their spouse’s superannuation account. Advantages include:

  • Investing for a spouse who may have little or no superannuation; and 
  • A tax offset for contributions for a low income earning spouse

A spouse tax offset worth up to $540 is available for a taxpayer who contributes for a spouse who earns less than $10,800. The offset reduces to nil when income reaches $13,800.


Spouse contributions splitting may help you and your spouse to accumulate more tax-effective wealth for retirement. 

Generally, contributions splitting allows a member to split up to 85% of their employer and personal tax deductible super contributions made in the previous financial year to their spouse’s super. Splitting has a number of advantages including maximising superannuation withdrawals via two ‘low rate caps’.   

Amounts up to the ‘low rate cap’ of $180,000 (2013/2014 & $185,000 2014/15) are included in assessable income but taxed at a zero rate of tax, so splitting contributions to a spouse’s account enables up to $360,000 to be withdrawn by a couple with zero tax payable on the withdrawal. 


Source | OnePath

Direct Insurance v’s a Qualified Financial Adviser

imagesAre you looking into life insurance for the first time? Not sure if you should go to companies directly or use a Financial Adviser?

It’s a life full of choices, and today there are more than ever. But are you falling for the marketing hype?  The fact is, on daytime television we are constantly bombarded with the option to call for quick and easy applications with no medicals. But what does that mean to you? 

  • Poor Value for Money
  • Higher Premiums
  • Standard Exclusions
  • Cost
  • Tax Effectiveness
  • Guarantee of payout
  • Speed of implementation
  • Management of claim

 Poor Value for Money

The most important reason for not going directly to the insurance company is that most of the comprehensive life insurance policies on offer to the public are only available through Financial Advisers. Insurance companies leave it up to life insurance advisers to talk to the clients about the products, run through the applications and help them through the process. That’s one of the reasons that the products that are on offer when you go directly tend to be poor value for money.

Direct or industry funds generally offer basic cover, without as many extra benefits available. Financial Advisers have access to products that have a wider range of features that can be tailored to your own individual preference and budget.

Higher Premiums

The Life insurance companies that sell direct products ask very few medical and occupational questions. With little questions asked, the insurance company is not able to fully underwrite your policy. This leads to insurer’s making assumptions about your health and charging higher premiums than they should.

With no medicals, the direct insurer has no option other than to price higher in anticipation of risks unknown. Many direct insurers hide behind a clause stating that ‘claims due to pre-existing conditions are not valid’.  On the other hand, products mostly recommended by an adviser will be fully underwritten at application stage allows you the peace of mind knowing that you are covered in full when a claim is made.


Standard Exclusions

Time poor individuals, or people who are uncomfortable with going through their entire medical history, are those who view the direct life insurance as a valid option. What they also don’t realise, besides a higher premium, is that there can be standard exclusions placed onto their policies.

There can be automatic exclusions for people with anything from mental health issues to diabetics. You may end up paying premiums for a product that doesn’t even cover you.   


 Direct cover is normally fully funded from your own cash flow, and often can be more expensive than a Financial Adviser sourced product.  However, single premiums can often be cheaper (typically Group Life cover).  An adviser can work with you, and look at ways of paying for your cover via superannuation, and using various linking options that reduce the overall cost to you.

Tax Effectiveness

Most direct insurance premiums, as they are funded from cash flow alone are only tax deductible for the income protection component. A Financial Adviser can show you how to pay for your insurance with multiple possible benefits depending on your circumstances.

Guarantee of payout

Direct insurance normally offers no guarantee that a payment will be made, as often these policies are underwritten at the time of claim. (See ‘Higher Premiums’ above). 

Speed of implementation

With direct insurance, there is no doubt that it is quicker.  There is a reason for that!

We will use your full financial profile to consider your actual needs and compare and match the products to your individual circumstances.   The Adviser then needs to research solutions for you and prepare a report outlining these. Paperwork needs to be completed and a Statement of Advice has to be produced for your agreement and your application needs to be assessed by an underwriter.  We ensure your policy goes into force as quickly and smoothly as possible, and we are there to ensure you have a hassle free process.

Management of claim

 Besides the obvious disadvantages of dealing with insurance companies directly, Financial Advisers at AFD Financial Solutions do all the hard word for you AND we are there with and for you to manage your claim as required.


Addressing insurance needs of SMSF members

imagesAddressing insurance needs of SMSF members

When the Cooper Review into superannuation was released in 2010, one of the most notable findings was that less than 13% of SMSFs had life insurance cover.


The review recommended that SMSF trustees be required to consider providing insurance for its members and documented the consideration as part of the fund’s investment strategy.

 The SIS Regulations were amended in August 2012 to address this recommendation and took immediate effect. SMSF trustees must now consider whether the fund should hold insurance cover for one or more members of the fund and should be documented as part of the fund’s investment strategy.

 However there is little guidance on what SMSF trustees need to do in order to meet this requirement. This article provides some insight into how this might be done. 

What types of insurance can be considered?

The regulations don’t prescribe the type of insurance that must be considered by the trustee, but it is advisable that this should at least address needs for death, total and permanent disability (TPD) and income protection cover. Trustees are also currently permitted in certain circumstances to take other types of insurance cover such as own occupation TPD or trauma cover, although this will change from 1 July 2014.

What is critical is that the types of insurance considered need to be documented in the fund’s investment strategy.

Understanding the client

It’s critical that any advice provided reflects that there are in fact two clients – clients operating in their capacity as trustees of the SMSF and those same individuals in their capacity as members of the SMSF.

 Recommending that an individual should have a particular type and level of cover and how it should be structured, either held personally or in the SMSF, is personal advice to the individual in their capacity as an SMSF member.

 Advice in relation to the SMSF providing or not providing insurance or how this should be reflected in the investment strategy is personal advice to the individual in their capacity as trustee.  

 The advice provided to the client in their capacity as a member of the SMSF may assist the trustee in making its decision to provide or not provide insurance cover.  Ultimately the decision to have insurance is one for the members of the SMSF.

 Key considerations

  1. The investment strategy must demonstrate that the trustee has considered providing insurance to members. This should include how the trustees intend to deal with insurance and reflect what insurance if any, the trustees have put in place. This may also include incorporating any personal member advice as rationale for the trustees’ decision to provide (or not provide) insurance. 
  2. Make sure that the governing rules of the SMSF allow the trustees to hold insurance for fund members. Beware of any rules that may limit the type of insurance which can be offered, e.g. restricting the term of income protection to two years. Consider any implications about the types of insurance events that the trustee can provide from 1 July 2014 and possible changes to the governing rules.
  3. Spell out the purpose for which the insurance has been acquired and how the proceeds are to be used. For example, where an SMSF has borrowed to purchase business real property, the primary reason may be to retire debt rather than add to a member’s death or TPD benefit.

 All insurers provide a full features retail offering, but you should also consider whether a simplified solution which provides fast and easy access to the benefits of wholesale group insurance might be more beneficial.

 There’s more than one insurance solution for SMSFs. To find out more contact your financial adviser.


Source | AIA