Did you get a letter recently from your super fund about protecting your super?
In February 2019, changes proposed in the 2018 budget became law, and if action isn’t taken then inactive superannuation accounts could lose their insurance. The changes are due to commence from 1 July 2019, however there are steps you may need to take now to ensure the best outcome for you.
Protecting your super reforms coming into effect 1 July 2019
These reforms are designed to protect Australians’ retirement savings by ensuring their super isn’t unnecessarily eroded by fees and premiums on insurance policies they may not need.
If you are to be impacted by these changes you should have received a letter from your super fund which we encourage you not to ignore, or if you think this may impact you please contact your super fund to check.
Why is it important?
Jordan George is an industry leading speaker for the SMSF Association, and holds the title ‘Head of Policy’.
2018 was a tumultuous year for SMSFs with volatile investment markets and an even more volatile political environment giving SMSFs plenty to think about. However, as we move into the festive season, this is the ideal time to review your SMSF plan and consider what awaits in 2019. Taking some time to review and plan can help ensure your SMSF is on track to achieve your superannuation goals.
The key issue that will occupy the mind of most SMSF trustees is the imminent 2019 Federal election, expected in May, and the possible change to a Labor Government. We already know that the Australian Labor Party has announced significant policies impacting SMSFs.
The most substantial planned policy change is Labor’s proposal to end the refundability of franking credits. SMSFs that receive franking credits for the tax paid by Australian companies will often receive a refund of the tax paid at the corporate level.
SMSF trustees need to truly understand diversification and better diversify their portfolios.
The benefits of a well-diversified portfolio are numerous but the key ones that SMSF trustees should focus on are the benefits of mitigating volatility and short-term downside investment risks, preserving capital and the long-run benefits of higher overall returns. By spreading an SMSF’s investments across different asset classes and markets offering different risks and returns, SMSFs can better position themselves for a secure retirement.
However, did you know that 82% of SMSF trustees believe that diversification is important but in practice many do not achieve it?
This is because half the SMSF population cite barriers to achieving diversification. The top being that it is not a primary goal for SMSF trustees, and they believe they have a lack of funds to implement it.
Furthermore, 36% of SMSF trustees say they have made a significant (10%) asset allocation change to their SMSF over the last 12 months. This demonstrates that SMSFs may not be actively restructuring their portfolio on an annual basis to respond to changing market conditions.
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,