Superannuation News

Superannuation, sometimes known as your “nest egg,” is a key part of your lifestyle flexibility and retirement puzzle.

Read our insights to keep up to date with the latest news, trends and changes related to superannuation advice.

Pension Minimums to Remain Halved for the 2021/22 Financial Year

In somewhat surprising (but welcomed) news, a weekend media release from the Government has announced that the 50% reduction in pension minimums are to be extended for the 2021/2022 financial year.  

These measures were initially adopted for the 2019/20 & 2020/2021 financial years due to the impact of Covid. In the release it was noted that this measure “…continues to make life easier for our retirees by giving them more flexibility and choice in their retirement.” 

Is this necessary when investment markets have recovered? I’m not convinced, but happy to provide advice on the opportunities it presents to you.

Important: Remember that the reduced minimums are an option and not a mandatory reduction to your payments. You have the choice to reduce or retain pension payments, providing they meet or are above the reduced minimum.

For our clients on an ongoing service package, we will be in touch to discuss your options in the new financial year. If you want to have a chat sooner to understand your options then please get in touch, or book a chat with your adviser at our online booking page.

NOTES: 

  • This media release occurred over the weekend and didn’t provide a lot of detail. We expect more information to follow, and we will continue to provide relevant updates as they come to hand.
  • Also, a lot can happen in a month and we will have to wait until 1 July 2021 to assess exactly what this means for you and your minimum pension payments for the 2021/22 Financial Year. However a reasonable estimate will be possible from 1 July 2021. This estimate will become actual when your super funds 2021 accounts have been completed.

 

 

How do you work out your reduced minimum annual payment?
Use the percentage factors in the table below to calculate your minimum annual payment amount, using your age at 1 July of the financial year (or at the date your income account commenced, if later).

 

 

 

Read the Government media release here.

 

 

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Federal Budget 2021: what individuals need to know

The 2021 Federal Budget was announced on 11 May 2021 and Pekada will provide you with the resources to determine the potential impact to you, the opportunities and how to manage them effectively.

After the economic turmoil of 2020, the 2021-22 Federal Budget focused on measures to promote economic growth and recovery with big spending and very few surprises.

The biggest winners aged care, women, health, and childcare. Perhaps laying the foundations for an Election announcement?

There were also some wins for superannuation, although the rate of superannuation guarantee or changes to minimum pension requirements didn’t see any proposed changes. As a result, superannuation guarantee will increase to 10%, and minimum  pension drawdown requirements will revert to their standard levels from 1 July 2021.

On a positive note it was good to see the data confirming the economy is recovering rapidly, but the Treasurer did temper the excitement on this, noting that we cannot take the gains we have made for granted. Probably a fair point, as a fair chunk of the heavy lifting has come as a result of tax receipts off the back of an iron ore spot price that is 4 times higher than forecast. The deficit is still significant, however it is hard to argue that something of this magnitude isn’t required.

 

NOTE: It’s important to remember that the Budget announcements are still only proposals at this stage. Each of the proposals must be passed by Parliament before they’re legislated – and could change.

 

 

 

SUPERANNUATION

Repealing the work test for non-concessional contributions and salary sacrifice contributions for people aged 67 to 74

Expected to be 1 July 2022
The Government has announced it will allow individuals aged 67 to 74 to make or receive non-concessional (including under the bring-forward rule) or salary sacrifice superannuation contributions without meeting the work test, subject to existing contribution caps.

However, individuals aged 67 to 74 years wanting to make personal deductible contributions will still have to meet the existing work test. This measure is proposed to have effect from the start of the first financial year after the enabling legislation receives Royal Assent. The Government stated it expects this to occur prior to 1 July 2022.

 

Reducing the eligibility age for downsizer contributions to 60

Expected to be 1 July 2022
The Government has announced it intends to reduce the eligibility age to make a downsizer contribution from 65 to 60 years of age.

The downsizer contribution rules allow people to make a one-off after-tax contribution to super of up to $300,000 from the proceeds of selling their home they have held for at least 10 years. Under the rules, both members of a couple can make downsizer contributions for the same home and the contributions do not count towards a member’s non-concessional contribution cap.

This measure is proposed to have effect from the start of the first financial year after the enabling legislation receives Royal Assent. The Government has stated that it expects this to occur prior to 1 July 2022.

 

First Home Super Saver Scheme – increasing the maximum releasable amount to $50,000

Expected to be 1 July 2022
The Government has announced it will increase the maximum releasable amount for the First Home Super Saver Scheme (FHSSS) from $30,000 to $50,000.

Under the existing FHSSS rules, an eligible person can only apply to have up to $30,000 of their eligible (voluntary) contributions, plus a deemed earnings amount, released from super to purchase their first home.

This measure is proposed to have effect from the start of the first financial year after the enabling legislation receives Royal Assent. The Government has stated that it expects this to occur prior to 1
July 2022.

 

Removing the $450 per month minimum superannuation guarantee threshold

Expected to be 1 July 2022
The Government has announced it intends to remove the $450 per month minimum superannuation guarantee (SG) income threshold.

Under the current rules, an employer is not required to pay superannuation guarantee contributions for an employee who earns less than $450 per month.

This measure is proposed to have effect from the start of the first financial year after the enabling legislation receives Royal Assent. The Government has stated that it expects this to occur prior to 1 July 2022.

 

Complying pension and annuity conversions

Effective first financial year following Royal Assent The Government has announced people with certain complying income stream products will be given a two-year window to commute and transfer the capital supporting their income stream (including any reserves) back into a superannuation account in the accumulation phase. The member can then decide whether to commence a new account based pension, take a lump sum benefit or retain the balance in the accumulation account.

The income streams affected by this measure include:

  • market-linked income streams (otherwise known as Term Allocated Pensions),
  • complying life expectancy income streams and
  • complying lifetime income streams,

that were first commenced prior to 20 September 2007 from any provider, including self-managed superannuation funds (SMSFs).

Under the measure, any commuted reserves will not be counted towards an individual’s concessional contributions cap but they will be taxed as an assessable contribution of the fund. When commuted, any social security treatment the product carries such as 100% or 50% asset test exemption and/or grandfathering for income test purposes will cease.

However, the Government has confirmed there will be no re-assessment of the social security treatment the product received prior to the commutation. Therefore, the member would not be required to pay back any overpaid entitlements.

The Government has also confirmed the existing transfer balance cap rules will continue to apply. Therefore, on commutation the member will receive a debit in their transfer balance account based on the debit value method that applies.

Income streams not included in this measure include flexi-pensions offered by any provider and lifetime products offered by a large APRA-regulated defined benefit scheme (eg some older corporate funds) or public sector defined benefit scheme (eg CSS, PSS).

 

Relaxing residency requirements for SMSFs and Small APRA Funds (SAFs)

Expected date 1 July 2022
The Government plans to relax the residency requirements for SMSFs by extending the central management and control test from 2 to 5 years and removing the active member test.

Under current rules, SMSF trustees living overseas who intend to return to Australia at some point can be away for a period of up to two years and the fund will still meet the central management and control test. Under the proposal, the trustee will be able to be away for up to five years and still meet the test.

Further, the active member test will be abolished. Under this test, if the fund had members that were ‘active’ by making contributions or rollovers into the fund, the residency status of the fund could be jeopardised. This means that members who are overseas for a period of time often cannot make contributions to their SMSF or SAF. In contrast, a non-resident can contribute to large APRA and industry funds without putting the fund’s residency status at risk.

Abolishing the active member test simplifies the rules and ensures that members and trustees who are temporarily overseas can continue to make contributions to their SMSF or SAF without jeopardising the fund’s complying status.

 

 

TAXATION

Retaining LMITO in the 2021-22 income year

Effective 1 July 2020
The Government will retain the low and middle income tax offset (LMITO) for the 2021-22 income year, providing further targeted tax relief for low- and middle-income earners. The LMITO provides a reduction in tax of up to $1,080. The table below shows the amount of offset an individual client is entitled to depending on their taxable income:

 

This announcement means that an individual’s effective tax-free income threshold for 2021-22 financial year remains the same compared with the current financial year. An individual who is not eligible for seniors and pensioners tax offset can effectively have taxable income of up to $23,226 without having to pay income tax.

 

Modernising the individual tax residency rules

Effective 1 July following Royal Assent
The Government will replace the individual tax residency rules with a new, modernised framework. The primary test will be a simple ‘bright line’ test — a person who is physically present in Australia for 183 days or more in any income year will be an Australian tax resident. Individuals who do not meet the primary test will be subject to secondary tests that depend on a combination of physical presence and measurable, objective criteria. The measure will have effect from the first income year after the date of Royal Assent of the enabling legislation.

 

Simplifying self-education tax deductions

Effective from the income year after Royal Assent Currently, tax deductions for Category-A self-education expenses must generally be reduced by $250.

The Government has proposed removing this $250 reduction amount to effectively allow individuals to claim a tax deduction for all Category-A self-education expenses.

Category-A expenses include tuition fees, textbooks, stationary, student union fees, student services and amenities fees, public transport fares, car expenses worked out using the ‘logbook’ method (other than the decline in value of a car), running expenses for a room set aside specifically for study.

 

 

SOCIAL SECURITY

Increasing the flexibility of the Pension Loans Scheme

Effective 1 July 2022
The Pension Loans Scheme (PLS), a voluntary, reverse mortgage type loan available through Services Australia, currently allows a fortnightly loan of up to 150% of the maximum rate of Age Pension. From 1 July 2022, the Government will implement two changes to the scheme – a No Negative Equity Guarantee and lump sum advances.

No Negative Equity Guarantee
A No Negative Equity Guarantee will be introduced so borrowers, or their estate, will not have to repay more than the market value of their property, in the rare circumstance where their accrued PLS debt exceeds their property value.

Lump sum advances
Eligible people will be able to receive one or two lump sum advance payments totalling up to 50% of the maximum Age Pension each year. Based on current Age Pension rates, this is around $12,385 per year for singles and around $18,670 for couples combined. Note, the total amount eligible people are able to receive under the pension loans scheme, including
any lump sum advance payments, has not changed. The total amount cannot exceed 150% of the maximum Age Pension which is around $37,155 per year for singles and around $56,011 per year for couples.

 

 

CHILD CARE

Increase in child care subsidy

Effective 1 July 2022
The Government announced it will:

  • increase the Child Care Subsidy (CCS) rate by 30 percentage points for the second child and
    subsequent children aged five years and under in care, up to a maximum CCS rate of 95% for
    these children, commencing on 11 July 2022, and
  • remove the CCS annual cap of $10,560 per child per year commencing on 1 July 2022.
    This will provide greater choice to parents who want to work an extra day or two a week. Removing
    the annual cap helps support the choices of parents to work the hours they want to work and, in
    particular, reduces barriers that secondary income earners face when seeking to work more.

The current hourly fee caps will continue to apply.

 

 

AGED CARE

Increased funding for Home Care

Effective 1 July 2021
To support senior Australians to remain at home, the Government is funding an additional 80,000 Home Care packages:

  • 40,000 released in 2021-22
  • 40,000 released in 2022-23

Additional respite care services will be provided to assist carers and enhanced support services will
be provided to assist senior Australians to navigate the aged care system

 

Increased funding for residential aged care

Effective over 3 phases: 2021, 2022-23, 2024-25
To improve and simplify residential aged care services, the Government is implementing a range of measures To improve residential aged care quality and safety, including a new star rating system to provide senior Australians, their families and carers with information to make comparisons on quality and safety performance of aged care providers.

Reforms to residential aged care services and sustainability, including a new Government-funded Basic Daily Fee supplement of $10 per resident per day, funding to implement the new funding model, the Australian National Aged Care Classification (AN-ACC), and implementation of a new Refundable Accommodation Deposit (RAD) Support Loan Program; and
a range of measures to grow and upskill the aged care workforce.

 

 

We are here to help

For our ongoing service package clients, your financial adviser will be in touch with any specific actions or impacts to your situation.

If after reading this you want to chat, get some clarification in regards to any of the above measures outlined in the 2021-22 Federal Budget, please contact us so that we can discuss your particular requirements in more detail.

 

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5 Financial habits that will pay dividends in 2021 and beyond

After a tough 2020, we’ve been reflecting on what that means for you, your families and your goals. All things considered, I feel we have been lucky here in Australia, but given the continued unpredictability of COVID-19, it’s perhaps wise to remember the lessons we’ve learned that will be worth holding onto through 2021 and beyond.

 

1. Markets are all about probabilities and risk management.

Or let me say this more bluntly—markets cannot (unfortunately) be timed with precision—by you, me, or any other expert. Let’s say, hypothetically, we had anticipated there was going to be a global pandemic, avoiding the sharp declines in the global stock markets, as you decided to withdraw your investment(s). Even with this knowledge (without a crystal ball), it would have been extremely difficult to predict the timing and strength of the rebound in the market. In this case, the severe downturn has (in many instances) corrected itself within six months. Ultimately, you would likely still be sitting on the sidelines, waiting for a better entry point to get back in.

 

2. Reconnect with your goals.

The best financial advice is personalised and tailored with strategies to help you reach your goals. If you start feeling anxious about your finances or the state of markets, take a break from day-to-day market monitoring and check in on your financial goals. I’d love to be involved in this process. By reacquainting yourself with your goals, we can adapt and improve—including why you set them in the first place and how your current financial strategy can help you reach them. “Staying the course” is never easy amid volatility or market nerves, but goal setting can help slow down a racing mind, take a breath, and redefine what you really want in life.

 

3. Be your own devil’s advocate.

If you’re starting to lean toward a change in your financial circumstances (for example, selling an underperforming investment or chasing the latest popular investment trend), ask yourself why someone else might buy/sell that same investment. Our minds have an easier time remembering and noticing facts and ideas that support our opinions but forcing ourselves to take a different perspective before acting can reveal every angle of a decision. This technique can also help you when you’re sifting through information online. If you keep coming across evidence that supports your opinion, challenge yourself to find a site that convincingly shows the opposite. Or even better—come to me, and we can explore it together.

 

4. Get to know your biases and turn down the noise.

Reading or hearing about unexpected asset value changes can put any financially-minded person on edge. You’ve hired us to help manage this for you, so one useful tactic is to set a schedule for how often you check your portfolio to turn the volume down on that noise. The schedule should focus on the appropriateness of your investments in relation to your goals.

In relation to this, research shows that understanding our behavioural biases can help us spot them in our decisions. There is a saying that the best financial advisers are just as aware of psychology as they are financial analysis. Taking some time to read about the psychology behind our decisions and emotions is an advancement toward financial independence.

 

5. “The intelligent investor is a realist who sells to optimists and buys from pessimists.”

This saying is an old favourite that comes from Benjamin Graham, one of the founding fathers of value investing. We’ve seen the full spectrum of fear and greed in the past year—but it pays to be a humble realist. Humans have overcome incredible challenges throughout the centuries, and we are on our way to overcoming the latest challenge. But don’t be fooled into thinking the recovery will be smooth or doomed. It will have speed bumps, with each change in sentiment creating potential opportunities for the intelligent investor.

 

The Pekada team are well placed as your go-to resource to help you thrive financially, identifying opportunities, navigating future challenges and working towards whatever it is that is important to you. If you want to chat about the above or your personal situation then please get in touch with us.

 

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Super contribution caps set to increase from 1 July 2021

It has been a long time coming, but from 1 July 2021 the concessional and non-concessional contribution caps are set to increase due to indexation.

Due to the release of the Average Weekly Ordinary Times Earnings (AWOTE) figure for the December 2020 quarter, both the concessional contribution cap and the non-concessional contribution caps are set to increase due to indexation from 1 July 2021.

The new concessional and non-concessional contribution caps are outlined in the following table.

 

It is also important to note the $1.6m non-concessional cap threshold is also changing due to the indexation of the general transfer balance cap on 1 July 2021 to $1.7m.

For example, from 1 July 2021 a person’s non-concessional cap will be nil if their total superannuation balance on 30 June 2021 is $1.7m or more.

In addition, the bring-forward period thresholds (based on a member’s total superannuation balance) are also set to increase from 1 July 2021 due both to the increase in the standard non-concessional cap to $110,000 and the increase in general transfer balance cap to $1.7m.

For a full description of these important changes and how they may impact your retirement, please contact us.

 

 

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How much money do you need to start an SMSF?

SMSFs are not for everyone, but for those individuals where an SMSF is entirely appropriate for them, the benefits can be considerable.

In the context of ongoing public debate regarding the appropriate minimum size for an SMSF, new research has been provided to provide insights into the true costs of running an SMSF. And the research shows SMSFs are cheaper to run than many people may think.

The findings allow SMSF trustees and potential SMSF trustees to compare appropriate estimates of fees for differing SMSF balances with institutional superannuation funds (commonly referred to as APRA regulated funds).

The costs include establishment, annual compliance costs, statutory fees and some investment management fees. Direct investment fees have been excluded.
What does the research tell us?

  • SMSFs with less than $100,000 are not competitive in comparison to APRA regulated funds (SMSFs of this size would generally only be appropriate if they were expected to grow to a competitive size within a reasonable time).
  • SMSFs with $100,000 to $150,000 are competitive with APRA regulated funds (SMSFs of this size can be competitive provided the Trustees use one of the cheaper service providers or undertake some of the administration themselves).
  • SMSFs with $200,000 to $500,000s are competitive with APRA regulated funds even for full administration. (SMSFs above $250,000 become a competitive alternative provided the Trustees undertake some of the administration, or, if seeking full administration, choose one of the cheaper services).
  • SMSFs with $500,000 or more are generally the cheapest alternative regardless of the administrative options taken. (For SMSFs with only accumulation accounts, the fees at all complexity levels are lower than the lowest fees of APRA regulated funds).

This research highlights that SMSFs with a low complexity can begin to become cost-effective at $100,000. This is a significant departure from what many had believed to be the case. For simple funds, $200,000 is a point where SMSFs can become cost competitive with APRA regulated funds or even cheaper if a low cost admin provider is used. With the proposed expansion to six member SMSFs, we may see many more take up this option at this threshold.

 

Comparing 2 member funds

From a cost perspective, the real benefit of an SMSF is when it achieves scale in balance and this can occur when members pool their superannuation savings. The below comparison can be used to grasp the ranges you might fall into.

But it’s more than cost

When determining whether an SMSF is right for you, your analysis must go further than just a simple comparison of the costs versus APRA Regulated Funds. It should also factor in your retirement and income goals and whether you have the desire, time and expertise to take on the role of an SMSF trustee. It’s also worth factoring in SMSF members may not receive the same level of protection in the event of theft or fraud that members in APRA regulated funds do.

 

How can we help?

If you would like to discuss whether an SMSF is right for you, please feel free to give me a call.

 

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Budget 2020 – what you need to know

This is without doubt one of the most exciting times of the year, well at least for some of us. Last night the Treasurer, Josh Frydenberg, released the Government’s highly-anticipated 2020-21 Budget, featuring the bringing forward of tax cuts, superannuation reforms, measures for Centrelink clients and additional aged care funding.  After going into a record deficit of $213.7 billion to support individuals and businesses during the Coronavirus crisis, the focus of this year’s Budget is to regrow the economy by creating job opportunities and encouraging spending.

Pekada’s team have reviewed the Budget and prepared a summary of the key measures for you, and will be updating our the Federal Budget 2020 page here throughout the day.

NOTE: It’s important to remember that the Budget announcements are still only proposals at this stage. Each of the proposals must be passed by Parliament before they’re legislated – and could change.

 

TAX CHANGES

Personal tax cuts
The Government has announced that it will bring forward stage two of the previously legislated tax cuts that were due to take effect from 1 July 2022 by two years. As a result, from 1 July 2020:

  • the Low Income Tax Offset (LITO) will increase from $445 to $700. The increased LITO will be reduced at a rate of 5 cents per dollar between taxable incomes of $37,500 and
    $45,000. The LITO will then be reduced at a rate of 1.5 cents per dollar between taxable incomes of $45,000 and $66,667.
  • the top threshold of the 19% tax rate will increase from $37,000 to $45,000, and
  • the top threshold of the 32.5% tax rate will increase from $90,000 to $120,000.

What this could mean for you

  • The following chart shows the tax cuts you might receive this financial year based on your income levels and the amount of tax you’re currently paying.

Low and Middle Income Tax Offset
The Low and Middle Income Tax Offset (LMITO) was introduced in the 2018 Budget, to complement the existing Low Income Tax Offset (LITO). In 2019, the base rate for the LMITO increased from $200 to $255 and the maximum payment increased from $530 to $1,080. The Government had planned to discontinue the LMITO when the stage two cuts were to be introduced in mid-2022. However, even though the stage two cuts have been moved forward to the current financial year, the LMITO will also remain in place for the
2020–21 financial year.

What this could mean for you

  • If you qualify for LMITO you will receive payment after you submit your next tax return. Depending on your income, the maximum LMITO you can receive is $1,080. However, the LMITO is scheduled to cease next year. This means you could end up paying more tax in the 2021–22 financial year than in 2020–21. Dual income couples can both be eligible for the LMITO, up to a combined total of $2,160.

 

SUPERANNUATION CHANGES

Default super accounts
Currently, if you start a new job and you don’t let your employer know where you want them to pay your super contributions, they will open a super account for you. The account will be in your employer’s default super fund. This may result in you having multiple super accounts.

By 1 July 2021, your employer will be able to obtain information about your existing super account from the ATO. They will then pay your super contributions into this account, unless you instruct them to pay it to a different account.

For people who don’t yet have a super account, their employer will be able to open an account for them in their default
super fund.

What this could mean for you

  • Over 4 million Australians currently have multiple super accounts, and this means they’re paying more than one set of super fees and possibly multiple insurance premiums as well. The Government estimates that this is costing Australians $450 million each year. The intention of this change is to keep people’s super accounts attached to them, so they can take them from job to job.
  • By having only one super account, you can stop paying unnecessary fees and insurance premiums that may be eroding your super balance. Having all your super together can also help your super savings accumulate faster.

Performance testing for MySuper products
MySuper products follow a strict set of government guidelines. They tend to offer their members lower fees, simple features and limited investment options.

The Government feels there are too many underperforming super funds in the market, and this is impacting members’ retirement savings. From 1 July 2021, MySuper products will be subject to an annual benchmarking test. If the fund is found to be underperforming, it will need to inform its members by
1 October 2021.

Further, if a fund is found to underperform for two consecutive years, they won’t be permitted to accept new members until their performance improves.
By 1 July 2022, all super funds will need to do the annual benchmarking test – not just MySuper products.
What this could mean for you

  • How your super fund performs can make a big difference to the amount of money you have when you retire. This change means that your super fund will need to tell you if your fund has underperformed compared to other super funds. You can then make a decision about whether you want to stay with your fund or change to another fund.

YourSuper online comparison tool
To help members easily compare super funds, the Government will release an interactive online comparison tool called YourSuper by 1 July 2021 which will:

  • rank MySuper products by fees and investment returns
  • provide links to super fund websites
  • show if you have more than one super account so you can consider consolidating them.

What this could mean for you

  • Choosing a super fund can be daunting. This comparison tool will make it easier to see what each super fund charges in fees and how they have been performing. However, it’s important to remember that past performance is not always an indication of future performance.

 

HEALTH, WELFARE AND JOBS

Additional support payments for welfare recipients
Government support recipients will receive two separate economic support payments of $250, to be paid progressively from December 2020 and March 2021.

This follows two previous payments of $750 to eligible recipients, with the new payments estimated to cost a total of $2.6 billion.
What this could mean for you

You may be eligible for the two payments of $250 if you’re currently receiving:

  • Age Pension (including Age Pension (Blind))
  • Carer Allowance*
  • Carer Payment
  • Commonwealth Seniors Health Card
  • Disability Support Pension (including Disability Support Pension (Blind))
  • Double Orphan Pension*
  • DVA Gold card
  • DVA Payments
  • DVA Seniors Card
  • Family Tax Benefit (fortnightly recipients)*
  • Family Tax Benefit (lump sum recipients)*
  • Pensioner Concession Card (PCC) holders (covers non- income and asset test PCC holders and people who have an extended entitlement to a PCC even though their payment has stopped).

 

Health services
Coronavirus has taken its toll on the mental health of many Australians. Therefore, the number of psychological services funded by Medicare will be doubled from 10 to 20, effective immediately.

The NDIS will also receive additional funding of almost $4 billion, to provide essential support to Australians living with a disability.

Women facing ovarian cancer will now be able to access the drug Lynparza through the PBS. Rather than costing $140,000 per course, general patients will now pay around $41 for a script while concession card holders will be charged $6.60.

What this could mean for you

  • If you currently access any of these services, or think you may need to in the future, it’s important to understand what you’re eligible for. As the first step, we recommend you speak with your doctor.

New jobs in key industries
The Government is committing $1.5 billion over five years from 2020–21 to support the building of competitiveness, scale and resilience in the Australian manufacturing sector. It will focus on six key industries of strategic interest:

  • defence
  • space
  • medicine and medical products
  • food and beverages
  • resources technology
  • recycling and clean energy.

Rural communities will benefit from $2 billion in funding over 10 years to improve water infrastructure, while regional businesses will benefit from an expansion of the instant asset write-off scheme. Regions that rely on international tourism will benefit from their share of $51 million in funding over two years to diversify their markets.

While the Budget doesn’t offer much financial relief to female workers currently impacted by Coronavirus, the government is committing $240 million over four years towards a range of employment initiatives for women. These include increasing female workforce participation in male-dominated industries such as construction.

What this could mean for you

  • With the pandemic causing massive job losses around the country, these measures are designed to get as many Australians back to work as possible. While some industries may currently offer more opportunities than others, it’s likely that many industries will be in a state of flux for years to come.

 

For our ongoing service package clients, your adviser will be in touch with any specific actions or impacts to your situation.

If you have any queries in the interim or would like further clarification in regards to any of the above measures outlined in the 2020-21 Federal Budget, please feel free to give me a call to arrange a time to meet so that we can discuss your particular requirements in more detail.

 

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What is Maximum Super Contribution Base and how does is impact you?

The amount of superannuation you get paid is not always as simple as, 9.5% of your income. The level of income you earn, and whether that exceeds what is called the maximum super contribution base will impact how much superannuation guarantee you are paid.
 

What is Maximum Super Contribution Base?

The maximum earnings base of an employee for which an employer is legally required to make superannuation guarantee (SG) contributions is $57,090 per quarter ($228,360 per annum) for the 2020/21FY ( this is indexed to AWOTE on 1 July each year).

 

This means that in the 2020/21FY, if you are earning $228,360 or more ($57,090 per quarter), an employer is only required to provide $21,694 in SG contributions over the year, based on the current maximum earnings base of $57,090 per quarter and current SG rate of 9.5%.
 

How does this impact my super and take-home pay?

The amount of $21,694 remains within the $25,000 concessional contributions cap, and you may choose to make additional contributions to maximise this cap.

Because you will no longer be paid superannuation on earning above the maximum super contribution base, you will need to ensure you clarify the terms of your remuneration package with your employer. You will want to be clear on whether they will provide any other benefits as taxed salary or other benefits. This can become a point of tension where you may have negotiated a remuneration package of $xx plus super.
 

An example of how the maximum super contribution base works

If you earned an income of $65,000 plus super in a quarter of the 2020/21 financial year, your employer would not have to pay the 9.5% super guarantee on the entire amount. Legally they would only be required to pay at most $5,423.55 a quarter, or 9.5% of the maximum contribution base for that income year which was $57,090.

Important to note:

  • Where an employee is being paid by two or more different employers, a separate maximum earnings base applies for each employer. This may cause the member to have excess concessional contributions.
  • The SG payment rate is legislated to gradually increase to 12% by 1 July 2025.
  • If the maximum earnings base in future years effectively (as a result of increases) requires the employer to make excessive concessional contributions for the employee, the maximum earnings base is to be reduced to the amount that would NOT result in excess concessional contributions.

 

If you have any questions about your personal circumstances then please get in touch and schedule a chat with myself or one of our advisers.

 

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Reduced minimum annual pension payments by 50% for 2020/21

Recent investment market volatility has resulted in the Government implementing reduced minimum annual pension payments with Legislation being passed on 25th March 2020. The thinking behind the change is to give retirees the option to reduce what they are drawing from their superannuation. In doing so, retirees may avoid being forced to sell down depreciated asset holdings and realise capital losses to fund pension payments. The Government has reduced the minimum annual payment by 50% for both this financial year (2019/20) and the upcoming financial year (2020/21).

It is important to note that this is a temporary measure, and at this stage, we will revert to the standard minimum pension requirements in the 2022 financial year.

 

 

What are your options?

  1. Reduce your pension payments
  2. Do nothing and maintain your current pension arrangements

If you have already drawn the reduced minimum in the current income year you will not be required to take any additional payments. However, from a practical perspective, you may need to contact your fund to confirm you wish to reduce your pension payments accordingly.

Also where you have already received more than the reduced minimum, you cannot get any pension payments you have received over the reduced minimum back into superannuation – (unless you are otherwise eligible to contribute). Important to note that while this legislation allows people to reduce their pension payments to preserve capital, whether you are in a position to reduce pension payments will depend on your individual circumstances and ability to meet ongoing living and lifestyle costs.

Things to note

  • It’s important to check with the relevant superannuation fund as to their procedures for nominating a change in pension payment due to the reduced minimums.
  • If you have originally nominated to receive the minimum annual payment, you may still need to notify the fund that you wish to reduce their payments to the reduced minimums.
  • Many super funds are applying the reduced minimum annual payments in 2020/21 where you have nominated to receive the minimum annual payment last financial year.
  • Transfer balance cap implications are of particular interest for those at or close to the $1.6m balance transfer cap. The reduction in the minimums has meant that where a
    client with an account based pension (or transition to retirement pension in retirement phase) wants to draw more than the reduced minimums, they can choose to take the additional amount as either a pension payment or a lump sum. Taking the additional amounts as a lump sum can be beneficial for transfer balance cap purposes as lump sum
    withdrawals are debits for transfer balance cap purposes.

 

What action should you be taking?

There is no catch-all answer to this and it really depends on your individual circumstances and financial position. In many cases, you may not want to receive the reduced minimums as you may need the higher payments to meet your living expenses. In this case, you should nominate to receive a higher level of pension payments at the level you require. However, if you are in a position where you do not require the higher level of pension payments due to other savings accounts or reduced spending then by reducing your pension payments warrants consideration. Any reduction will assist in preserving your pension portfolio balance and avoiding drawing down on depreciated asset holdings to fund pension payments.

If you would like to make any changes or need to discuss your options more accurately, please contact your adviser and they can assist you as to the best course of action.

 

 

 

 

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Superannuation for 65 years and over

As you are leading up to the ripe age of 65, you are either thinking of retirement or already in retirement.  In this blog we can hopefully give you guidance and knowledge on what sort of things you can do with your super once you are in this age bracket to make sure you are utilising super to it’s fullest potential to boost your retirement savings. The information below should let you know how you can get your money into super and what types of things you should be considering before making a decision.

 

Here are some general dot points you should know when you’ve reached the age of 65.

 

  1. At age 65, you have no restrictions with accessing your superannuation benefits via an income stream.

 

  1. When you have an income stream, you must ensure your payments meet the minimum pension requirements.
    • If you are managing your own SMSF, this is your responsibility to take the minimum required amounts each year.
    • If you are under an industry or SuperWrap type account, this will be the responsibility of the trustee product provider.
  1. Work test
    • Applicable once you turn 65 years old until you turn 75 years old, you must have worked at least 40 hours within 30 consecutive days in a financial year before your super fund can accept any non-concessional contributions for you (including, personal contributions, spouse contributions and government co-contributions).

 

  1. Work test exemption
    • Allows an individual’s super contributions made by individuals ages 65 to 74 for an additional 12-month period from the end of the financial year in which they last met the work test, subject to their total super balance being less than $300,000.

 

 

Now what type of contributions is accessible to you? There are two types of contributions that you contribute into super, that is, Concessional Contributions and Non-Concessional Contributions. An easy way to think of this is, Concessional Contributions is anything you contribute into super with pre-tax monies (before your income gets taxed and is deposited into your bank account). On the other hand, Non-Concessional Contributions is anything you contribute into super with your after tax monies (money that has already been taxed and deposited into your bank account).

 

Concessional Contributions

 

General Rule:

 

Superannuation Guarantee:

  • Contribution that your employer pays you on top of your regular income.
  • Regardless of what age you are, as long as you are still working you will continue to receive SGC.

 

Salary sacrifice contributions:

  • Contribution whereby you elect to sacrifice part of your income to contribute additional funds into super.
  • Work test must be met or use the work test exemption.
  • Must be under the age of 75.

 

Non-Concessional Contributions

 

General Rule: 

  • Maximum contribution cap of $100,000 per annum.
  • Must be under the age of 75.
  • Bring forward rule is not available.
  • Work test must be met.
  • Work test exemption can be used – if applicable.
  • More information.

 

Member voluntary contribution:

  • Contribution you make with money you have in your bank account.
  • g. Partner A and Partner B has $250,000 in their bank account that they don’t require and want to invest this. Partner A and Partner B are able to make member voluntary contribution of $100,000 each in their respective super funds. The remaining $50,000 will need to be invested elsewhere or the following year if they meet the work test or use the work test exemption.

 

Downsizer contributions:

  • Proceeds of downsizing your family home can be put towards superannuation as a downsizer contribution of a maximum $300,000.
  • Certain requirements must be met.
  • g. Partner A and Partner B sells their home worth $1,600,000 and uses proceeds to purchase a smaller home worth $1,000,000. With the $600,000 both of them can make a downsizer contribution of $300,000 each.

 

Spouse contribution

  • Contributions whereby you make contributions into your spouse’s super account.
  • You may be able to claim an 18% tax offset on super contributions up to $3,000 that you make on behalf of your non-working or low-income-earning partner. You can contribute more than $3,000, but you won’t receive the spouse contribution tax offset on anything above $3,000.
  • Must be aged between 65 and 69 years of age.
  • g. Partner A is a stay at home parent who works part time looking after the children. Partner B is the sole income earner in the family. Partner B decides to make a spouse contribution into Partner A’s super account in order for them to claim an 18% tax offset on super contributions. In total Partner B makes a contribution of $3,000 to make the most of the tax offset.

 

Government Co-Contribution

  • A contribution which you make into superannuation whereby the government contributes a maximum of $300 given you make the requirements.
  • Requirements:
    • Under 71 years of age
    • Total super balance less than $1.6 million for 2019-20 FY.
    • Made eligible personal super contribution.
    • 10% of total income must come from eligible source.
  • Your income threshold must be surpass the higher income threshold.
    • A lower threshold ($38,564 for 2019–20)
    • A higher threshold ($53,564 for 2019–20).

 

As you can see above, there are a number of strategies you can take to get money into the superannuation environment. It is critical you understand the legislation and requirements behind each type of contribution you decide to make. I would suggest you seek a professional to discuss whether or not these contributions are relevant or suitable to your objectives, goals and situation.

 

As always if you have any questions, feel free to shoot as an email or give us a call!

 

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What happens to your SMSF when the unexpected occurs?

Your SMSF is a long-term plan. Much can happen during this time including illness, incapacity or death of a member.

It is best practice to have contingency plans in place to deal with unexpected events. For example, if a fund member dies, leaving you as the sole member are you happy to continue with the SMSF

Outlined are some issues to consider planning for as trustees. Leaving the planning to when, and if an event happens may be too late.  

Death 

Think about where you want your superannuation to go on your death. The introduction of the $1.6 million transfer balance cap means larger sums of money may need to leave the superannuation system sooner, as a result planning has never been more critical. You may need to think carefully about who receives your superannuation on death to maximise its benefit for your beneficiaries.

The rules of your SMSF, as set out in your trust deed and related documents, determine how the trustee structure is to be reconstructed on the death of a member. It also details how death benefits are to be handled by you and your fund.

A lot of careful consideration needs to be given to understanding the member’s wishes to ensure that your fund’s trust deed and broader governing rules are drafted appropriately to achieve these requirements.

Legal tools to help direct your superannuation can include making a binding death benefit nomination to nominate who will receive your superannuation on your death or providing for your pension to continue (or revert) to a permitted beneficiary (such as your spouse) following your death.

You may also consider appointing a corporate trustee. If the membership of an SMSF with individual trustees changes, the names on the funds’ ownership documents must also change. This can be costly and time-consuming. A corporate trustee will continue to control an SMSF and its assets after the death or incapacity of a member. This is a significant succession-planning issue for an SMSF as well as for the estate planning of its members.

Diminished or loss of capacity

Consider the consequences if you become unable to act as trustee (e.g., due to mental incapacity). You can appoint an enduring power of attorney to act in your place as trustee, if required. This is someone who can be trusted to handle your financial affairs and can be appointed as trustee of the SMSF. 

Member leaves the fund 

How would your SMSF be affected if one or more of the fund members decided to exit the fund? For example, an SMSF heavily weighted in real estate may have to sell the asset or introduce a new fund member to allow the exiting member to transfer out of the fund.

Separating couple

Family law contains a number of options for superannuation to be split between a couple who separate or divorce. Your superannuation is treated separately to your other property, and specialist advice may be needed.

Reviewing your insurance 

SMSF trustees should regularly review insurance as part of preparing your investment strategy. This includes considering whether or not insurance cover should be held for each SMSF member. Your insurance cover may be essential if an unexpected event occurs.

In some circumstances, you may already be holding insurance through membership of a large super fund. This policy may exist due to an employment arrangement and may be more cost-effective than an equivalent valued policy that you could hold within an SMSF. However, not all insurance policies are the same, so seeking advice will help you to understand your needs.

Administration of your SMSF

If an unexpected event occurs you may need to consider winding up the fund if managing the fund will be too time-consuming, onerous or costly for the remaining members.

As annual SMSF running costs generally remain fixed, your superannuation balance may fall to a level where it is not cost-effective to remain in an SMSF – at this point, it may be appropriate to transfer out of the fund (e.g., to a retail or industry fund).

How can we help?

If you need assistance with planning for an unexpected event or reviewing your current strategies, please feel free to give me a call to arrange a time to meet so that we can discuss your particular circumstances in more detail.

 

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