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Change for good or change for the sake of change?

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With the significant swing against the Coalition at the October by-election in the Sydney seat of Wentworth, we turn our attention to next year’s Federal Election, expected to be held in May 2019.

If present trends are an indication of the future, we will see a change of government with the Australian Labor Party (ALP) taking the reins of power in Canberra.

So, what will a change of government mean for our super?

Hardly a month goes by without someone proposing that we change some aspect of the superannuation system. It is no wonder that the average super fund member is so disengaged with their super.

In July 2017, we saw the most significant changes to superannuation in the previous 10 years. Some changes were good, and others not so good, depending on your perspective.

Some of the initiatives the ALP has previously expressed opposition to may provide hints to changes that might be made. These include:

  1. Reducing the annual limit (cap) for non-concessional contributions from $100,000 to $75,000 per annum.
  2. Reducing the income threshold, at which the additional 15% tax becomes payable on concessional contributions from $250,000 to $200,000. Interestingly, the ALP originally proposed reducing the threshold from $300,000 to $250,000, but when the Coalition government reduced it to $250,000, the Opposition responded by announcing a reduction to $200,000.
  3. Opposition to the ability of people, with less than $500,000, in super to carry forward the unused portion of their concessional contribution cap.
  4. The ability for people to claim a tax deduction for their personal superannuation contributions.

On the positive side, the ALP recently announced plans to give women a better chance to achieve equality in superannuation by requiring superannuation guarantee contributions (currently 9.5% of salary) to continue to be paid while on government paid maternity leave. This would also be extended to men, who take paid paternity leave following the birth of a child.

Currently, employers are not required to make superannuation guarantee contributions for employees earning less than $450 per month. However, the ALP proposes to remove the minimum income threshold before superannuation guarantee contributions become payable. Unfortunately, this may lead to very small amounts being contributed to super only to be swallowed up in fees and charges by super funds and otherwise being lost to the members.

The Opposition has also made some other significant tax-related announcements, including the controversial plan to eliminate the cash refunds of excess franking credits and making changes to negative gearing for existing properties. By all accounts, negative gearing will still be available for newly-built residential properties, but not for established properties.

Without a doubt, as the next election approaches, we are going to see much posturing by political parties of all persuasions, as they jockey for control over Australia’s $2.7 trillion superannuation nest-egg.

 

Source:  Peter Kelly | Centrepoint Alliance

Compound Interest – the most powerful force in the universe!

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When saving for a long-term goal, such as retirement, is it better to save small amounts for a long time, perhaps saving when we cannot afford to, or waiting until later in life and putting larger amounts aside when it is more affordable?

We look at both sides of the debate and put some simple figures together.

Let’s put some ground rules in place:

  • The savings are non-concessional (i.e. after-tax) contributions made to a superannuation fund.
  • The rate of return earned is a net return (i.e. after the deduction of all fees, taxes, and charges).
  • All projections are expressed in 2018 dollars. However, there will be inflation. This can be managed by increasing the amounts saved in line with inflation.

Option 1 – Saving $100 per week for 40 years, earning 5% per annum.

We will start saving $100 per week, from age 25 through to age 65. We earn a conservative 5% per annum on our savings.

According to the ASIC’s Moneysmart Calculator, we would accumulate a total of $661,275 over a 40-year period.

The actual savings contributed, amounts to $208,000 and the earnings component is more than double at $453,275.

Option 2 – Saving $200 per week for 20 years, at 5% per annum.

In this option, we save $200 per week, but don’t start until age 45, also saving through to age 65, and earning 5% per annum.

The amount saved will also be $208,000, however by starting later, the earnings are only $148,229, making a total of $356,229 after 20 years.

To achieve the same outcome as Option 1, we would need to save $371 per week from age 45 for 20 years.

 Option 3 – Saving $100 per week for 40 years, earning 10% per annum.

The total amount saved is still $208,000, however, the total amount saved has jumped to a massive $2,740,434.

Option 4 – Saving $200 per week for 20 years, at 10% per annum.

Sadly, the accumulated savings after 20 years, even at 10% per annum, is a rather paltry $658,120.

So, the jury is in……

Saving a smaller amount for a longer period certainly seems to win out.

 

 

Source:  Peter Kelly | Centrepoint Alliance

Superannuation Death Benefits – where will yours go?

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This is a very sensitive topic and one that we don’t like to think about or plan for. It is estimated that around 50% of Australian’s die without having made a will.

A common mistake is that most of us believe any money we have saved in superannuation is part of our estate and will be dealt with under our will. Superannuation benefits do not automatically form part of a person’s estate.

Many superannuation funds allow their members to make a death benefit nomination. That is, the member may stipulate who they would like to receive their super on their passing.

Superannuation laws set out the classes of people who may receive a superannuation death benefit. These include:

  1. A spouse of the deceased, including de-facto and same-sex partners,
  2. Children of the deceased, including adult children,
  3. Anyone who had an interdependency relationship with the deceased, and
  4. The deceased’s legal personal representative.

The test of dependency occurs immediately before the death of the super fund member.

The majority of superannuation funds allow their members to nominate who they would like their superannuation to be paid to on their passing. Subject to certain conditions being satisfied, a death benefit nomination will be binding on the superannuation fund and they must pay the benefit in accordance with the nomination.

The common types of death benefit nominations that may be offered by superannuation funds include:

  • Binding death benefit nomination – generally valid for three years
  • Non-lapsing death benefit nomination – similar to a binding death benefit nomination, however, it does not expire after three years.
  • Non-binding nomination – this is an expression of a wish. It is not binding on the super fund and therefore does not offer the certainty of the previous types of nomination.
  • Reversionary nomination – where a member is receiving a pension from their super fund, they may nominate a dependant to continue to receive the pension on the member’s death. There are restrictions on super funds paying reversionary pensions to adult children of the deceased.

Importantly, not all super funds offer all these options.

Where a valid binding death benefit nomination is made, the superannuation benefits will pass directly to the nominated beneficiary and will not form part of the deceased member’s estate. This can be a very useful tool to provide certainty where there is the risk an estate may be contested.

However, a binding or non-lapsing death benefit nomination made in favour of the deceased’s legal personal representative means the benefit will form part of the estate and be dealt with under the terms of the will (or intestacy laws in the event of no will having been made).

If a nomination is found to be defective, or if no nomination has been made, the trustees of the super fund will determine to whom the death benefit will be paid. They may choose to pay the benefit to one or more dependants, or pay the benefit to the legal personal representative.

As super funds may offer a different combination of death benefit options, and may have set processes in place to deal with the payment of death benefits where a nomination has either not been made or is invalid, super fund members and their advisers need to be familiar with the options available and ensure that any death benefit nomination is correctly made and maintained.

 

Source:  Peter Kelly | Centrepoint Alliance

Lost Super – Do you have any?

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Did you know that thousands of Australians have indirectly ‘given’ billions of dollars of their super to the Australian Taxation Office (ATO)?

When we start a new job, our employer will ask us to provide a heap of information like our address, tax file number, who to contact in the event of an emergency, bank account details and details of our super fund.

Unfortunately, our super fund and account number is not information we have readily available and sometimes we wouldn’t know where to find it. So, rather than trying to find the details, we simply allow our new employer to send their superannuation guarantee contributions off to the ‘default fund’.

We continue to work for a couple of years and then, in the interests of bettering ourselves, we change jobs. When we start the new job, we enter the same cycle with our super and end up with yet another superannuation fund. Around 40% of Australians have more than one super fund.

When superannuation becomes lost or when benefits are not claimed by members when entitled to do so and super funds are unable to contact their members, the super funds are required by law to send the accumulated savings of their ‘lost’ members to the ATO. At the end of June 2017, the ATO was holding around $16bn of lost and unclaimed super.

So, how do you go about finding your lost super?

There are a couple of ways you can do this:

1. Log on to your myGov account (if you have one)  and go to the ATO section. Click on the ‘super’ tab and it will display all the super details the ATO has for you. If you don’t have a myGov account, it is easy to create one.

2. You can fill in a form and send it to the ATO to complete your search for you. This form can be found on the ATO website

3. Many superannuation funds will conduct a search for lost super for their fund members.

4. Many financial planners will also help their clients search for their lost super.

 

Source: Peter Kelly | Centrepoint Alliance

Budget 2018 – What does it all mean?

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What does this year’s budget have to offer?

With a federal election clearly in the wind, the budget contained a little bit of something for almost everyone.

Unlike the 2016 budget that included massive changes to super, this year’s budget was a lot lighter in terms of super announcements. However, there were a few including:

  1. Allowing people aged between 65 and 74 to make voluntary contributions super in the year after they cease working, without having to meet the work test. This will apply from 1 July 2019.
  2. Increasing membership of self-managed super funds from four to six, from 1 July 2019.
  3. Moving to a three-year audit cycle for SMSFs with good record keeping and compliance history. This will commence from 1 July 2019.
  4. The ability for younger people and those with less than $6,000 in super to opt-in for life insurance cover inside their super. This differs from the current system where they have to opt-out if they don’t want life cover.
  5. Some relief from the risk of breaching the concessional contribution cap for people earning more than a combined $263,157 from more than one employer.

The budget also contained some immediate tax relief for low to middle-income earners with the introduction of a Low to Middle Income Earners Tax Offset of up to $530. This will apply from 1 July 2018 and will be paid as a lump sum at the end of the financial year once an income tax return has been lodged.

There will be tax cuts across the board, however, significant changes, particularly for higher income earners, won’t come in to effect until 1 July 2024.

On the good news front, the planned increase in the Medicare Levy that was due to come in from 1 July 2019 is no longer proceeding.

The big winners from the budget were older Australians with considerable funds being directed to the delivery of residential and in-home aged care services.

The budget makes proposed changes to the Pension Work Bonus to take effect from 1 July 2019, which allows people to earn more from employment and self-employment in retirement without it affecting their age pension, and an expansion of the Pension Loans Scheme. The Pension Loans Scheme enables people to access a government-sponsored reverse mortgage scheme to top up their pension payments.

 

Source:  Peter Kelly | Centrepoint Alliance