Posts

How many super accounts should I have?

/in /by

As at May 2021, the Association of Superannuation Funds of Australia (AFSA) stated there were 24.4 million individual superannuation accounts held by Australians.

Every time we change jobs, and our new employer asks for our superannuation fund details so they can make compulsory contributions. If we don’t have those details at hand, our new employer will make contributions to their “default” fund, thereby resulting in a new account being opened.

As a result, many Australians have ended up with multiple, often small superannuation accounts. Sadly, these account balances are eroded over time to a point where, after fees, charges, and insurance premiums are deducted, nothing is left and the account is closed.

There will be occasions where having more than one superannuation account will be intentional. Where an individual wishes to:

• hold stand-alone insurance through super,
• segregate their taxable and tax-free components for estate planning purposes,
• draw a pension while also continuing to contribute, or
• hold money in the superannuation system even though they have reached their transfer balance cap, maintaining multiple superannuation accounts will be appropriate.

One of the inherent risks of having multiple superannuation accounts is the risk the accounts will become “lost”.

Just imagine, you have multiple superannuation accounts with different super funds opened because you have changed jobs a few times. You then move house and forget to advise your various superannuation funds of your new address. As a result, your super funds lose contact with you.

When a super fund has a lost member, they are required to transfer the lost account to the Australian Taxation Office (ATO). The ATO will then attempt to reunite the lost member with their lost superannuation.

The government-run campaign of reuniting members with their lost super has been quite successful, with around 13 million duplicate accounts having been closed or consolidated, over the course of the past few years.

However, there are still many duplicate accounts in existence. Having multiple accounts can result in duplication of fees and charges.

Looking for lost super and consolidating multiple accounts can be done quite simply by checking the superannuation tab in your MyGov account.

Before consolidating super it is important to speak with your financial adviser to ensure consolidation is in your best interest. Importantly, consolidating super may result in the loss of valuable insurance cover.

 

 

Source: Peter Kelly | Centrepoint Alliance

Compulsory super – a bit of a problem child?

/in /by

The current debate is whether compulsory employer superannuation contributions (generally referred to as “super guarantee” or “SG”) should be increased from 1 July 2021 or be deferred or possibly even suspended.

Back in the mid-1980s compulsory super was first introduced as trade-off for a national wage increase. It was referred to as award super, and required employers to contribute 3%, starting at 1%, of a person’s salary or wage to a superannuation fund.

By June 1988, just on half of all employees were receiving superannuation from their employer.

The Labor Government introduced SG legislation that commenced on 1 July 1992. The rate of SG contributions would progressively increase from 3% to 9% between 1992 and 2002.

By November 1993, 80% of employed people were making super contributions, or had them made (by an employer) for them. In many ways, SG had become “almost” universal for employees.

At one point, back in the 1990s the Keating Labor Government proposed supplementing SG contributions with a compulsory employee contribution starting at 1% and increasing to 3% by 1999-2000. This idea was abandoned when the Howard Liberal Government took office in 1996.

In 2010, in response to the Henry Review, the Coalition Government proposed increasing the rate of SG to 12% by 2019-20. This was legislated, however the dates have been tweaked along the way as successive governments of both persuasions have played with the system. The SG rate is not due to increase to 12% until 1 July 2025.

Where are we today?
The SG rate is due to increase from the current 9.5% to 10% from 1 July 2021.

However, as many businesses suffered following the lockdowns imposed by the outbreak of COVID-19 in early 2020, many are arguing that increasing the SG rate to 10% from 1 July 2021 is a step too far in the current economic environment. Any discussions by our political leaders on deferring the July increase has become highly politically charged. One of the major critics of any deferral is the superannuation sector which makes its money from the inflow of superannuation contributions.

What to expect?
As things presently stand, the government can go one of two ways.

They can either stick with the scheduled increase to 10% from 1 July 2021 – after all that is enshrined in legislation – or they can introduce an amendment to defer the next, and possibly future increases. However, if seeking to table amending legislation, the government may not have the numbers to support a deferment.

At this stage, I suspect we will hear more about this as we approach the Federal Budget which is expected to be delivered on 11 May 2021.

If you are looking to maximise your retirement savings, consider seeking the advice of a qualified financial planner.

 

Source: Peter Kelly | Centrepoint Alliance

How much is my super really worth?

/in /by

What is your super worth? Are you tempted to check your account balance on a regular basis?

This information is now available 24/7. We can log into our super fund account at any time and find out our account balance at the end of the previous business day.

Having said that, not all super funds are the same, and there lies a problem.

For the purpose of this article, we need to distinguish between two main types of super funds; retail super funds, and industry superannuation funds.

Retail superannuation funds are often products offered by large financial institutions including banks, while industry funds are often described as being not-for-profit, or profit-for-members funds.

Retail superannuation funds will generally be “marked to market”.

This means the value of the fund’s assets, and therefore the balance of each member’s account, are valued daily. The balance you see when you log into your account is what you would have received if you withdraw your funds at the end of the previous day. Where a superannuation fund invests in listed assets (shares, property trusts, fixed interest securities and cash) valuing the assets each day is relatively easy.

However, if a superannuation funds invests in a significant portion of assets that are not listed on an active secondary market, like a stock exchange, valuing assets on a daily basis becomes more challenging. In fact, some super funds with significant portfolios of unlisted assets, including direct property, may only value their assets once a year. This helps to smooth out account balance volatility.

When our super is held in a retail superannuation fund, the daily fluctuations in our account balance might appear concerning. After all, the fund is revaluing its billions of dollars of assets every day and a small increase or fall in (say) the US Dow Jones index can have a flow on effect to the Australian stock exchange. This in turn, translates to a positive or negative movement in our account balance.

One of the risks that occurs when our super fund invests in marketable securities like shares, fixed interest, and listed and unlisted property is that we experience this volatility. If our super fund values a significant portion of its assets less regularly, we will not see the same volatility.

However, if your super balance today is (say) $300,000, but a couple of months ago it was $330,000, does this mean you have lost $30,000? No, unless you have crystalised your loss if you sell or switch out of a particular asset or asset class.

One of the real risks to our superannuation savings is that we sell assets when the prices fall, rather than riding out the storm.

While some superannuation funds may appear, at least on the surface, to be less volatile than other superannuation funds, it is of absolute importance to ensure you are comparing like with like. If one fund is valuing its investments on a daily basis but another fund is valuing their investments less frequently, the second fund may appear to be less volatile. However, you need to look beyond the headline performance and consider other aspects including what types of investments the funds hold, the fees they charge, how frequently they value their assets, and how the funds perform over a one, two, five and ten year period.

Perhaps we should resist the temptation to check our account balance every day, or even every week unless we are actively managing our own portfolio (which most people don’t).

Imagine if we asked our real estate agent to value our home every day. While we may loosely keep track of real estate prices in our local area, we are generally only concerned about the “real” value when it comes time to selling.

If at the end of the day, the volatility of your super is causing concern and sleepless nights, perhaps it is time to review your overall investment objectives and consider moving to a more conservative investment mix.

If you need specific advice tailored to your own circumstances, we always recommend you consider seeking advice from a licensed financial planner.

 

Source: Peter Kelly | Centrepoint Alliance

Important changes to Superannuation

/in /by

Australian employers are obliged to make minimum contributions to superannuation (super) for their employees. This is known as Super Guarantee (SG).

Currently an employer is required to contribute 9.5% of their employees’ salary (based on their Ordinary Time Earnings or “OTE”) to a super fund. Contributions must be made at least quarterly, by 28 January, April, July and October each year.

Employees can ensure their super guarantee contributions are being made in a correct and timely manner by checking their My.Gov account or with their super fund.

There are two important changes that will be affecting super guarantee contributions from
1 January 2020 and while these changes won’t affect everyone, it is good to be aware of what these are.

With the passing of the Treasury Laws Amendment (2019 Tax Integrity and Other Measures No.1) Bill 2019 (Cth) on 22 October 2019, employers will no longer be able to offset their Super Guarantee obligations against contributions made to super under a salary sacrifice arrangement.

Where a salary sacrifice arrangement is in place, future super guarantee contributions will need to be calculated on an employee’s salary before the salary sacrifice contributions are deducted.

Change 1: Offsetting Super Guarantee
A salary sacrifice arrangement is a voluntary agreement where an employee chooses to forego part of their salary and have their employer contribute the foregone portion to super instead. This is a popular tax planning strategy as the amount contributed to super is taxed at a maximum rate of 15%, rather than at the employee’s marginal tax rate, as would be the case if it was paid as salary.

The downside of this is that a contribution made under a salary sacrifice arrangement is regarded as an employer contribution and can be used by the employer to offset their obligation to make further super guarantee contributions.
For example, if we consider an employee who earns $100,000 per annum, their employer is required to contribute $9,500 to super.

However, if that same employee asks their employer to salary sacrifice $10,000 of their salary to super, they will receive a salary of $90,000 and the foregone $10,000 will be contributed to super on their behalf.

The employer still has an obligation to contribute 9.5% of the new salary of $90,000 to super ($8,550). But, as the employer has already contributed $10,000 to super under the salary sacrifice arrangement, there is no need for the employer to actually contribute the additional $8,550 to super for the employee. Under this arrangement, the employer wins and the employee loses.

From 1 January 2020, employers will no longer be able to use salary sacrificed contributions to meet their super guarantee obligations.

Change 2: Calculating Super Guarantee contributions
At the present time, an employer can calculate their super guarantee contributions on the reduced salary after deducting salary sacrifice contributions from 1 January 2020 this will no longer be the case.

Turning back to our example, currently an employer is only required to base their super guarantee contributions on the reduced salary of $90,000.

From 1 January 2020, super guarantee contributions must be calculated on an employee’s ordinary time earnings before the salary sacrifice contributions are deducted. Once again, turning back to our example, future super guarantee contributions will be based on $100,000, rather than $90,000.

While many employers have, in the past, calculated super guarantee on the pre-sacrifice salary, and have not offset their super guarantee contributions with salary sacrifice contributions, the new legislation provides clarity and certainty.

Readers are encouraged to take an active interest in their super and ensure their employers are paying the correct amounts on their behalf.

Even though your employer includes details of superannuation contributions on your pay slips, it is important to check and ensure the contributions are actually being made to your super fund.

If you are planning to review or establish a salary sacrifice arrangement, consider seeking advice from a financial planner. Contributing too much to super can result in having to pay more tax, and not contributing enough can impact your retirement income.

 

Peter Kelly | Centrepoint Alliance

What is the cost of complacency when it comes to your Superannuation?

/in /by

Many Australians, in particularly the younger ones, are so totally disengaged when it comes to Superannuation that they are not aware of what super fund they belong to, how many accounts they have with different super funds and how their super is invested.

Do you fall into this category?
Disengagement with super is highlighted by the fact that in 2017/18 the Australian Taxation Office was holding around $17.5bn of lost superannuation. This was spread over $6.2milion separated accounts, with the largest single account being $2.2m for a New South Wales individual.

Even if you don’t have any lost super and know how much you have, there are other things you need to be aware of that can have a significant impact on just how much you will have in super when you reach retirement.

Things like, how your super is invested, and the amount of fees you are paying can seriously impact how comfortable your retirement will be.

For many Australians, their compulsory superannuation contributions are being paid to a super fund nominated by their employer and is being invested in accordance with the funds’ default investment option. The super fund selected, and the investment option may be totally inappropriate for an individual member of the fund.

When we talk of investing money, we must take into account what is referred to as our “risk profile”. That is, are we someone who doesn’t like to take unnecessary risks with our money and therefore may be a conservative investor, or are we someone you is prepared to take considerable risk to see our super nest egg grow and therefore be a “growth focused” investor, or do we sit somewhere in the middle ground and are a “balanced” investor.

Many default superannuation funds have a balance investment of option as their default. But what is a balanced fund for one super fund may mean something entirely different for another super fund.

Being a member of a default balanced fund may be fine for someone who is willing to take some, but not a lot of risk in the manner in which their super is invested, but it may be totally inappropriate for a member who is approaching retirement and may feel more comfortable with a less risky approach to their investments, or for a younger member who has many years to ride out the ups and downs of the investment markets in exchange for a potentially higher return.

Selecting an appropriate investment option for their super becomes an important consideration for members of superannuation funds. An additional 1% or 2% annual investment return on superannuation savings can make a difference of hundreds of thousands of dollars for a young superannuation fund member, over their working life.

Another aspect of super that cannot be ignored is the fees being charged by super funds to manage your money. While fees for many super funds have been reducing over recent years, there are still many super funds that are charging fees in excess of those offered by their peers.

Just as an additional 1% or 2% of additional investment return can have a positive impact of a superannuation balance, paying higher fees than necessary can have a significant negative impact on superannuation savings over the course of a working life.

As a member of a super fund, you need to be aware of what is happening with your super.

Here are some questions to consider:

1. How many super fund accounts do I have? If more than one, should I consolidate them into one fund? This can save on fees – but check that you are not losing valuable insurance cover first.

2. Do I have any lost super? This can be checked by logging in to your MyGov account or asking your existing known super fund to check for you.

3. What fees am I paying for my super? In particular, am I paying fees for services I don’t need?

4. How is my super invested? Is it appropriate for my life stage and my own attitude to risk?

5. How has my super fund performed over time? Don’t simply keep chasing last year’s best performing fund but look to a super fund that provides consistent returns over a longer period and charges a fair fee for the services they provide.

For many people, analysing the appropriateness of their super fund will not be an easy task. However, help from a suitably qualified financial adviser to ensure you are, or get you back on the right track may be money well spent.

 

Source: Peter Kelly | Centrepoint Alliance