Profile Blog - Category ‘Financial Planning’

Retiree clients looking to sell their property can often contribute more to their SMSF than expected through the government’s recently introduced downsizer contribution rules, due to the flexibility to split contributions between spouses and use them in conjunction with other contribution rules, according to Fitzpatricks Private Wealth.

Speaking at SMSF Adviser’s SMSF Summit 2019 event in Brisbane, the advice firm’s head of strategic advice, Colin Lewis, said it was possible for clients approaching their 65th birthday in particular to double their contribution amounts by making use of the downsizer and bring-forward contributions and potentially splitting contributions with their spouse.
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The short answer is changes to industry regulations to improve transparency for clients. More detail is outlined below.

The regulator (ASIC) recently changed the rules so that commissions paid to planners from super funds must cease completely from 1st January 2021.

Also, as many of you know, similar changes to industry regulations back on 1 July 2013 started the cessation of commissions paid to planners from super funds and the reduction by 50% of upfront commissions on insurance products.
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Be aware:  Australians are being warned that they will need half a million dollars to escape the “retirement trap” of a reduced pension due to assets meeting certain thresholds.

       

 

According to BetaShares, retirees who lift their savings to between $350,000- $600,000 may ironically see their income diminish.

BetaShares senior investment specialist Dr Roger Cohen said, “Common wisdom tells us that accumulating more savings through our working lives should result in higher income in our retirement years.” 

“However, our analysis shows that, for certain people, under the current system, accumulating more money can actually produce the reverse.”

The current retirement system in Australia sees retirees drawing income from a combination of superannuation, the Age Pension and external assets. 

The pension is means-tested, with the level of entitlement calculated using an income test and an assets test. These entitlement levels and associated reduction in the pensions are the primary drivers behind the “trap”.

More specifically, for an individual, there is an income range between $174 and $2,026 per fortnight, where for every additional dollar earned, the pension is reduced by 50 cents. This effectively halves the value of additional earnings for retirees in this range.

 

Cameron Micallef
24 January 2020
smsfadviser.com

 

A law firm has warned trustees to consider several factors to ensure they’re complying with the Superannuation Industry (Supervision) Regulations 1994 (SISR) before deciding to access the government’s early access to super scheme.

NB:  Beware also scams surrounding the early release of super funds, they are on the increase.

         

The temporary early access to super (TEAS) scheme was one of several major changes to superannuation in the government’s second stimulus package in response to the economic effects of the COVID-19 outbreak.

The maximum amount that a member can access is $20,000 in the following increments, noting that a separate application is to be made on each occasion:

  • Up to $10,000 in the financial year ending 30 June 2020
  • Up to $10,000 in the financial year ending 30 June 2021

But according to Daniel Butler and Allison Murphy of DBA Lawyers, trustees should consider a range of other factors before accessing the scheme, including:

  • Whether the SMSF deed requires updating to enable a TEAS withdrawal, given this is a new condition of release that many SMSF deeds may not authorise.
  • The financial impact that any TEAS withdrawal will have on the member’s overall superannuation retirement nest egg over the long term.
  • Ensuring the fund has sufficient cash flow to fund any TEAS withdrawal together with its ongoing operations in view of any financial stress on the fund resulting from the coronavirus.
  • Preparing relevant trustee resolutions and updating the fund’s records.

As for members currently being paid an account-based pension or a transition to retirement income (TRIS) in retirement phase, Mr Butler and Ms Murphy said the amount required to fund the TEAS payment should first be commuted to accumulation before being paid to the member as a TEAS amount.

However, if a member is being paid a TRIS that is not in retirement phase, they said the amount should also first be commuted to accumulation before being paid as a TEAS amount, noting that a TRIS amount generally cannot be commuted, but new reg 6.19B of SISR authorises a payment of preserved money (after a TRIS is commuted).

“If the payment is not appropriately managed, a contravention of [SISR] could occur, resulting in potential penalties and the amount forming part of the member’s assessable income rather than being tax-free,” Mr Butler and Ms Murphy said.

“You should ensure the SMSF deed authorises this payment and prepare appropriate trustee resolutions.”

 

 

Adrian Flores
02 April 2020
smsfadviser.com

 

 

 

It's a number that can only be described as mindboggling: $400 million a day.

         

That's the total amount of money that has been withdrawn from Australia's retirement savings system under the federal government's special early release measure since it became effective in late April.

From 20 April, individuals financially affected by COVID-19 have been able to apply online through the myGov website to access up to $10,000 from their superannuation account tax-free this financial year.

So far, around 1.1 million Australians have collectively withdrawn close to $12 billion in superannuation – with an average withdrawal amount of about $8,000 according to the Australian Tax Office.

Superannuation funds, particularly the industry funds with large membership bases covering workers in the hard-hit hospitality and retail sectors, have been flooded with withdrawal requests.

The vast bulk of those requests have been from individuals with less than $10,000 in their accounts, with another sizeable proportion of applications coming from people with less than $20,000 in super.

In the context of Australia's total superannuation system, which is managing almost $3 trillion in assets on behalf of members, the amount that has been withdrawn to date represents less than 0.5 per cent.

However, the volume of superannuation money being taken out of the system is climbing day by day.

There is still over a month until the end of this financial year, and then a second tranche of the superannuation withdrawal measure comes into effect. Individuals who have been made redundant, or who have lost 20 per cent or more of their regular income, can access $10,000 of their superannuation from 1 July until 24 September, 2020.

In many cases, applications are likely to come in from the same individuals who withdrew $10,000 of superannuation savings before 30 June.

The cost of early access

As we've detailed in previous articles, the cost of accessing superannuation early primarily comes down to the forsaking of future compound returns.

For someone close to retirement, let's say less than 10 years away, the net returns cost of pulling out savings early won't be as great as for a younger person.

Our Investment Strategy Group recently did some calculations based on a balanced multi-asset managed fund containing a mix of equities and fixed income, with an average net return of 6 per cent per annum.

For an investor who has 20 years until retirement, the value of a $10,000 withdrawal is estimated to be worth $32,100 at retirement. Over the course of 40 years, the impact of the $10,000 withdrawal on the retirement savings climbs to $102,900, while a $20,000 withdrawal means an investor would have $205,700 less at their disposal.

A way back

It's still very early days, but there's already discussion in financial circles around the need to entice individuals in the post COVID-19 environment – especially those who have withdrawn superannuation – to replenish their retirement savings incrementally over time through additional concessional contributions (taxed at 15 per cent).

This discussion is being framed into the wider debate around the ultimate purpose of superannuation, which is enshrined in the Superannuation (Objective) Bill 2016 as “to provide income in retirement to substitute or supplement the Age Pension”.

Last September the federal treasurer announced an independent review into Australia's retirement income system, with the final report from that Retirement Income Review due to be provided to the government by June.

The longer-term consideration for individuals who have needed to withdraw superannuation because of the COVID-19 crisis is perhaps around developing a savings plan for further down the track, once they are in a more stable employment position.

Which could involve allocating small amounts of earnings back into superannuation over a long period in addition to the compulsory employer-paid Superannuation Guarantee levy contributions.

There are also much more generous rules in place now around making larger superannuation contribution catch-ups, well beyond the standard annual limitations.

In our recent article Do your investment goals stack up?, we pointed to the importance of having a financial plan and the need to reassess one's goals when unforeseen events occur, such as those currently being experienced.

In the current environment, the need for having a long-term financial plan that incorporates having adequate retirement savings in place is arguably more than important than ever.

 

Tony Kaye
Personal Finance Writer
26 May 2020
vanguardinvestments.com.au

 

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