New Year’s resolution: getting your super in order

Thinking about your superannuation might be the last thing you feel like doing this holiday season, but you should take this opportunity to get it out of the way! Setting aside just one hour to organise your superannuation will pay off down the track, and it will stop that little voice that occasionally keeps you up worrying at night.

Here are a few things you can do to get on top of your superannuation:

1. Make sure your super fund has your TFN: If your super fund doesn’t have your TFN then your contributions will have an extra penalty tax applied

2. Check to see if you have any super with other funds from previous jobs: If you have super that is spread out between a few different accounts then it is probably being eaten away by fees. You should consolidate all of your super into a single account. Remember to do a little research into different funds and look for the lowest fees.

3. Start making additional concessional contributions: Concessional contributions are a great way to save on tax and start preparing for retirement. The earlier you start making concessional contributions the more you benefit from the miracl of compound interest.

Investing in your super

People often overlook the advantages of making significant concessional contributions to their superannuation. By investing large sums of money inside your super, as opposed to assets outside of your super, you may end up saving a significant amount on your tax bill.

Concessional superannuation contributions are voluntary amounts that you contribute from your after-tax income. These are different from non-concessional contributions or before tax contributions. If you are under the age of 50, you may contribute up to $30 000 before tax to your superannuation, and if you are over 50, the limit is $35 000.

When you make concessional contributions to your super you do not have to pay any additional tax, as you will have already paid tax at your marginal rate. You may contribute up to $180 000 of your after-tax income each year to your super.

The advantage to investing within your superannuation fund is that all investment returns will be taxed at the flat rate of 15%. If you are thinking about making investments that will serve you in retirement you may care to investigate making larger concessional contributions to your superannuation.

Don’t lose sight of super in divorce

The superannuation gap between men and women in Australia is troubling, especially when women’s longer life expectancy is taken into account. The super gap is slowly closing amongst younger generations. However, the superannuation account balances of women over 55 continues to lag behind their male counterparts.

When going through a divorce, superannuation is treated as property. It may be divided up by a court order or negotiated throughout a settlement process. Research indicates that women are far more likely to prefer retaining the family home than to pursue superannuation.

For many women, it may be hard to rebuild super following divorce. This is especially true if they are caring for dependent children.

Women should always carefully consider the long-term consequences of their choices in divorce settlements, and make a reasonable assessment of their ability to increase their superannuation.

At every stage of life, women should consider making additional superannuation contributions whenever possible. Even small sacrifices early on in your career can make a huge difference to the nest egg that you have when you retire.

Nobel laureate recommends changes to Australian super system

Robert Merton, who was awarded the Nobel prize for economics in 1997, has recommended that the Australian superannuation system needs to rethink the way that it communicates with people about their retirement savings. Merton, who has spent the last decade studying retirement savings systems, believes that the Australian system is too focused on lump sum amounts, and should be regarded to make investors think about their future income streams.

“We are teaching people to look at the wrong number,” Mr Merton said in an interview. “What is a good retirement is measured by the standard of living you want in retirement, and standard of living is not defined by a pot of money but a stream of income. A good amount for retirement would be to sustain the standard of living you have become used to enjoying in the later part of your working life. That is an income goal; it’s not a wealth goal.

Merton also claims that the Australian super system needs to improve services in the pension phase of retirement savings.He claims that too many products that are classified as low-risk investments actually have highly volatile income streams, and retirees are given insufficient information from superannuation funds in regards to deciding when and how to withdraw their super.

Making smart investment choices in your SMSF

One of the most exciting things about self-managing your superannuation is the ability to make your own investment choices. In SMSFs, there are also a lot more investment options available, and it can be tempting to get a little creative with your portfolio.

However, unless you are extremely confident and familiar with the investment, or have received trusted professional advice, it is advisable to be wary of unorthodox investment options. Especially if someone is making a hard sales pitch, because good investments sell themselves!

This week the ATO released a warning about telemarketers trying to convince SMSF trustees to invest in high-risk collectables, such as art. If you are considering investing in collectables, which can be a great addition to your portfolio, you should always have them independently valued.

If you are considering investing in unusual areas, you should also make sure that the investment meets the sole purpose test.

Australia’s superannuation system ranked world’s second best

The Mercer Global Pension Index, a comprehensive annual report that rates the quality of international retirement schemes, has placed Australia’s superannuation system as the world’s second best.

Denmark was ranked number one, with the Netherlands, Finland and Switzerland rounding out the top five. Australia, Canada, Chile and Singapore were the only non-European states to make the top ten.

Representatives from groups representing the interests of Australian retirees have expressed surprise at the finding, pointing out that the full pension rate currently sits close to the poverty line.

Australia’s position improved thanks to the recent superannuation guarantee increase from 9.25%-9.5%. Industry representatives have claimed that if the guarantee rises to 12%, as is the government’s long-term plan, Australia could reach the number one position.

A guide to the different types of superannuation funds

There are a lot of different types of superannuation funds, and many people to not know what the differences between them are. We have compiled this guide to explain the different types of superannuation and details the advantages and disadvantages of each.

MySuper
MySuper accounts are a new type superannuation account that is a ‘no-frills’ superannuation option. Soon MySuper accounts will become the default superannuation option when an employee has not chosen a super fund. MySuper accounts have low fees and very simple features. Retail, industry and corporate funds can all offer MySuper accounts.

Retail Funds
Retail super funds are run for profit, usually by financial institutions or corporate investment firms. Membership is open to the public and people will often be referred to them by them by financial advisors, who may receive fees or commissions for the referral. For this reason you should always do your own research before taking advice to join a retail super fund. Retail super funds are known to have high fees, so you should always consider whether or not your returns will justify these costs.

Industry Funds
Industry funds are often restricted to employees from a specific industry, although some of the larger ones are open to the public. Industry funds are non-for-profit, so the fund directs all of the returns back to members. The fees of industry funds vary greatly, so you should make comparisons if you are considering an industry fund.

Public Sector Funds
Public sector funds were established for employees of Federal and State government departments. They are usually only open to governments employees, and generally have low fees and are not-for-profit. Public sector funds may be defined benefit or accumulation funds, although newer members tend to be in accumulation funds.

Corporate Funds
Corporate funds are organised by employers for their employees. The fund may be operated by larger retail or industry funds, in which case they will take some of the profits , or be operated by the employer under a boards of trustees, in which case they are not-for-profit.

Self-Managed Super Funds (SMSF)
SMSFs are superannuation funds that are managed by their members. An SMSF may have between one and four members, and they allow people to have more control over their investment options. There are also investments that are possible in SMSFs that are not available in public funds, for example; an SMSF may purchase a residential property that will be transferred to the members when they reach pension age. SMSFs can, however, be time consuming and will be more cost effective for some people than others.

Super guarantee frozen

Over the past week, the government has confirmed its decision to freeze the compulsory superannuation guarantee at 9.5% for the next seven years. It will rise to 10% in 2021 and then increase incrementally before plateauing at 12% in 2025. Previous to this, the superannuation guarantee was planned to reach 12% by the 2019/20 financial year.

In light of these changes, individuals may have to reconsider their approach to superannuation if they want to maintain their current retirement plans. If it is possible for you in your current circumstances, you may want to consider salary sacrificing into your super. This is also known as making concessional, or before tax, contributions. The advantage of salary sacrificing into superannuation is that it will be taxed at the low rate of 15% (as long as it is below the concessional contributions cap), which for most people is far less than their marginal tax rate. Even salary sacrificing as little as $10 a week into your superannuation can go a long way in counteracting the impact of the frozen superannuation guarantee.

Potential delay for superannuation increases

Currently, there are plans to increase the level of compulsory superannuation contributions, paid by employers, from the current rate of 9.5% of salary to 12%. The increases, as currently planned, would occur in 0.5% increments over the next five years.

However, due to pressure on the budget, the government wants to delay the first 0.5% increase for three years. This is because the significant tax concessions that are offered on superannuation contributions place an additional burden on government revenues. Treasurer Joe Hockey is proposing that the increases should be introduced at the discretion of the Treasurer, without the need to consult parliament.

The new provision, which has yet to be presented to the senate, would not allow any scheduled increases to be delayed by over four years and would also not allow the Treasurer to decrease the rate of compulsory contributions.

Advantages of an SMSF

For most Australians, superannuation is one of their most important assets, usually only coming second to the family home. Superannuation is a great way to plan for your retirement, offering you a lot of tax breaks and ensuring that you are putting money aside for the future you want.

However, it can be unsettling when you do not know exactly where and how this crucial asset is being invested. It is natural to want to have more control over your super, and to understand exactly where your money is invested.

Unfortunately, many industry, retail and corporate funds can be very vague in letting you know where your money is, for example simply saying ‘Australian shares’. Additionally, the choice of risk categories offered to members are often not specific enough to fully reflect your individual investment needs.

Starting an SMSF is not just about choice, but also control. You can create a more sophisticated investment strategy that is perfectly aligned with your risk appetite, ensuring that your money is doing precisely what you want it to do.

Recently, it has become possible for SMSFs to borrow money in order to purchase property. This means that when members reach pension age, they will be able to take control of the property, something that is not possible in other types of funds.

SMSF members also have a greater degree of control over the tax liabilities of their superannuation, and there are many effective tax minimisation strategies available to SMSFs.

There are also some advantages that are specific to business owners. Under some specific circumstances, your SMSF can even  purchase your business premises, and the business can, in turn, lease the property from the SMSF.