Balance and contribution caps are just part of the new regime.
There have been dramatic changes in the past few years – and more this July – to the administration, reporting and compliance of self-managed super funds, and it’s crucial that an SMSF trustee is up to speed on how they affect their fund.
Below are some of the key changes to discuss with an SMSF accountant to ensure the fund remains compliant, avoids penalties and employs the best strategies to improve retirement outcomes.
1. The ins and outs of TBAR reporting
For some, the mention of TBAR recalls lifts gliding up snow-covered mountains. From an SMSF perspective, the acronym stands for Transfer Balance Accounting Reporting.
TBAR is an Australian Taxation Office event-based reporting initiative and part of a longer-term move towards real-time reporting. It came into effect on 1 July 2018 and in simple terms means that when you complete certain events in the SMSF they need to be reported to the ATO in defined timeframes.
A recent survey of SMSFs revealed that estate planning is the highest unmet need for advice, estimated to affect 59,000 funds which equates to about 10% of the total number of SMSFs in Australia. Given demographic trends and the continued growth of SMSF numbers in Australia, this advice gap looks set to rise over time.
There are many good reasons to obtain advice on your SMSF’s estate arrangements, whether you need to plan carefully to cater for a blended family structure, to determine who is eligible to receive your SMSF death benefit, or simply ensure that the most tax effective outcome can be achieved for your beneficiaries.
Whatever the need is, it is imperative to ensure that the SMSF’s estate planning arrangements dovetail with each member’s other (non-superannuation) estate arrangements in order to achieve the right overall outcomes. Featuring prominently among these are the Will and Powers of Attorney, but there are also life insurance policies and entities such as discretionary trusts to consider.
How much superannuation should I have for my age?
As of July 2014, employers have been required to contribute 9.5% into superannuation, however individuals are able to contribute further.
According to The Association of Superannuation Funds of Australia’s (ASFA) Retirement Standard, a couple expecting a comfortable retirement will need an average of $60,457 a year.
Whilst there is no magic age to start planning for retirement, the simple answer is the earlier you start, the more chance you have to achieve the retirement you dream of. This really comes into play because of the compounding interest effect and how powerful it can be.
The longer a person has secured super contributions and associated investment earnings, the higher their account balance, especially over a significant period of time.
So, for my age, how much super should I have?
For the competitive among us,
If you have super with a default fund (i.e. the one your employer offered) you will have some form of life insurance, unless you have opted out. If you have researched and selected a superannuation fund specifically for yourself, you have probably been offered insurance. Either way life insurance and superannuation go hand in glove.
The fact is, insurance in your super can be a bit of a safety net, providing some protection in certain circumstances. But what is the insurance offered and how much can the premiums impact your retirement savings?
In conjunction with the release of Canstar’s 2018 Superannuation Star Ratings, our research team crunched the numbers to project a few possible scenarios to demonstrate what difference opting out of default life insurance could make to your retirement balance.
Many superannuation funds offer life insurances, such as death cover, total and permanent disability (TPD) cover and income protection, with a combination of these often set as default inclusion.
Beware the Ides of March! The month of March lived up to its brutal reputation that all started on 15 March 44BC when Marcus Brutus stabbed Julius Caesar to death in the Roman Senate. Red ink flowed during March like the blood of Caesar. However, despite the dramatic headlines, markets have merely returned to a normal level of volatility. In fact, 2017 was the unusual year, with its very low volatility. We need to keep some perspective and understand that it is the norm, rather than the exception, to see a 10% correction at some point during any given calendar year. And when you do see that sort of correction, it often makes the 12 month trailing performance look very ordinary, as you can see in the 12 month numbers in our table.
|INDEX RETURNS AS AT 31 March 2018 (%)|
|1 month||3 months||6 months||One year|
|Domestic Listed Property||0.11||-6.19||1.12||-0.07|
|Global Listed Property||2.37||-5.30||-1.85||1.23|
|Australian Fixed Interest||0.84||0.87||2.32||3.28|
|International Fixed Interest||0.84||-0.09||0.81||2.89|
|S&P/ASX 200 Accumulation Index|
|MSCI World ex Aust TR Index $A|
|S&P/ASX 300 Property Trusts Accum Index|
|FTSE EPRA/NAREIT DEVELOP NR INDEX (A$ HEDGED)|
|Bloomberg Composite 0 + Years|
|BarCap Global Aggregate Index Hedged AUD|
|Bloomberg Aus Bank Bill Index|
Knowing how much you need in retirement is more about knowing what kind of lifestyle you desire when you have retired, or, transitioning to retirement.
According to the ASFA Retirement Standard, for a single person that magic number is $545,000.
But according to the ABS – the average super balances for the entire working population1 would suggest that we are not even close to that mark, however, a closer look into the average balance by age group reveals that the average balance for men between 55-59 is $237,022 and for women it is $123,642.
So how can we boost our super balance?
When every dollar counts, here are a few sneaky ways to squirrel up your super balance;
- Make sure you’ve consolidated all of your super2 so to save on incurring multiple fees across multiple accounts. Just keep a careful eye on any nasty exit fees.
- We nearly all have super guarantee provided by our employer3,
Self-managed super funds have often been criticised for lacking diversification when it comes to their investments, specifically that SMSFs have too much in Australian shares and cash and not enough in international investments.
This criticism is somewhat unwarranted as SMSFs access international investments via Australian managed funds and ETFs. Research from Class Super shows that the underlying exposure to international equities across the top 20 managed funds and ETFs is 57% and 58% respectively (Source: Class SMSF Benchmark Report June 2016).
A large portion of SMSF trustees desire access to international investments, namely the US as the largest financial market in the world, however investing directly has traditionally been a costly and complex exercise. Trustees face a mountain of paperwork, complex forms and typically expensive trading fees.
Looking at trading fees, the cost to an SMSF to purchase AUD $10,000 of US stocks will be anywhere from $41 to $134 ($88 on average) per trade if conducted via the international broking solutions of the big four banks (Nabtrade,
The month of February finished up being almost flat, a surprise after the deep selloff early in the month.
Listed property, (local referred to as A-REIT’s and global as G-REITs) was down again on the rising interest rate curve. Although one never wants to stand in front of a freight train the value now emerging in listed property starts to look interesting at these levels. The longer term outcome will depend on bond yields.
Bonds are in the spotlight as a leading culprit in the increased volatility and the sell-off in the aforementioned A-REITs. The ten year US bond yields that we discussed at length in last months post continued to rise, peaking at 2.94% on 21 February. The yields appear to have run into some resistance at that level, but this could be merely a consolidating pause.
During the month, the S&P 500 index of US shares had a loss of 11.83%, which takes it into the ‘correction’ territory.
In the May 2017 budget, the Government announced that from 1 July 2018, older Australians could contribute up $300,000 each (per couple) from the sale of their family home into their Superannuation Fund. This measure is to encourage older people to downsize from family homes that no longer meet their needs, while also freeing up these homes to younger families starting out.
Do you pass the test to contribute the sale of your home into your Superannuation?
Currently the rules state that if you are over 65 years of age, then you cannot contribute into Superannuation unless you meet the “work test” (meaning you have worked at least 40 hours in a 30-day period and been paid for this service). If you do meet the work test, then you can only contribute up to $100,000 in after-tax contributions, and $25,000 in before-tax contributions.
Another layer of complexity to this is that even if you are over 65 in age,
The month of December capped off a great year for investment markets. Good returns with unusually low volatility provided ‘many happy returns’ for balanced and growth investors.
Australian fixed interest turned in a negative return, as longer term rates rose during the month. A widely expected rise in the US Federal Reserve rates pushed their Fed Funds rate up to 1.5%, the same as the Australian Official Cash Rate. The only negatives for the major asset classes for the month of December were International Shares, and Australian Fixed Interest. In fact, international shares were mostly positive in December, but the 3.0% rise in the Aussie dollar turned those gains into a negative return for the month.
On the currency front, the strong Australian dollar was in fact more about the US dollar which weakened by 10% versus a trade weighted basket of currencies over the 2017 year. This is a perverse outcome very few would have predicted given the US central bank was just about the only major global central bank raising rates during the year.