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Why your insurance within super could be at risk from July 1

Anyone holding insurance inside of super must be aware of the upcoming changes to inactive accounts, and to take prompt action if they wish to avoid having insurance they need cancelled.

What is changing?

From 1 July this year, super funds will be required to cancel insurance cover within accounts if the account is deemed inactive.

An inactive account is defined as any super account that:

  • has not received a contribution or rollover for 16 continuous months, and
  • the member has not opted in to continue their insurance cover.

What you need to do

Open your mail and emails from your super fund.

If you have a retail fund/s (bank or fund manager owned e.g. BT, SOLAR, Colonial FS)

Super trustees of retail funds were required to write to any affected members by 1 May 2019 warning ‘that if they had an inactive account for the past 6 months, they were at risk of the provisions applying to them’.

Whilst retail funds are working closely with financial advisers in an effort to minimise the negative implications of the change, it is a mammoth task for trustees. Your adviser may not be included in correspondence and may not be aware of every account at risk.

Please ensure you open all correspondence from your superannuation fund. If it is communication to advise that you have an inactive account please contact your financial adviser or FinSec immediately.

If you have an Industry fund/s (e.g. Statewide, REST, Australian Super)

Super trustees of Industry funds were required to write to any affected members by 1 May 2019 warning ‘that if they had an inactive account for the past 6 months, they were at risk of the provisions applying to them’.

Please be aware that Industry funds do not recognise advice relationships and are not working with financial advisers to mitigate the risk of this change. Your adviser will not be notified by industry funds of any client accounts that may be at risk.

Please ensure you open all correspondence from your Industry fund. If it is communication to advise that you have an inactive account please contact your financial adviser or FinSec immediately.

If your cover is cancelled, there is no guarantee it will be re-instated.

Who is affected and what is the implication?

The changes will affect all policy holders (all account types, regardless of balance) with superannuation accounts that are inactive for 16 consecutive months, unless the member contacts the super fund and elects to keep their insurance or makes a contribution to the account.

This is a consumer protection measure under the ‘Protecting Your Super’ reforms, but it could also have the unintended consequence of many Australians being unknowingly under-insured.

For more information on the Protecting Your Super Reforms click here.

Protecting your super reforms

In December 2018 the productivity commission ruffled a few feathers with its report into the Superannuation Industry, suggesting employers and unions cede control of the $600 bn default superannuation system.

The report identified that more than 30% of the 25 million accounts in the superannuation system are deemed inactive, resulting in investors paying $2.6 billion of unnecessary fees each year.

In response and as part of their 2018/19 Federal Budget the Coalition introduced a number of reforms designed to “protect Australians’ superannuation savings from undue erosion by fees and insurance premiums”.

The reforms

The reforms were passed by both Houses of Parliament on 18 February 2019, and is currently awaiting Royal Assent. Reforms include:

  1. Insurance within super cancelled for inactive accounts
    Superannuation trustees are required to cancel the insurance in any super account considered inactive.An inactive account is defined as any super account that:
    • has not received a contribution or rollover for 16 continuous months, and
    • the member has not opted in to continue their insurance cover.

    Before taking action, superannuation trustees must try to contact and advise account holders that they are at risk of having their insurance cancelled and provide people with the opportunity to opt-in to keep the insurance.

    Making a super contribution or rollover into an account that’s considered inactive will also stop the insurance cancellation from going ahead. Making regular contributions can also prevent an account becoming inactive again.

  1. Inactive super accounts with low balances will be closed
    Many inactive accounts with a balance of less than $6,000 will be closed, and the balance transferred to the Australian Tax Office. The ATO will then use data matching to connect these super accounts with an active account of the member where possible.
  1. Cap on fees for accounts with low balances
    Fees will be capped at 3% pa for accounts with $6,000 or less at year end.
  1. Switch funds without paying an exit fee
    All superannuation account holders will be able to switch super funds without paying a penalty as exit fees will be banned.

What you need to know in the lead up to the Federal election

With the 2019 Budget week having concluded following the formal delivery of the 2019/20 Federal Budget by the Treasurer on 2 April 2019, and the Opposition response on 4 April 2019, it’s now “game on” in terms of policy positions as the electorate starts to consider where they will cast their vote in the upcoming election.

For some voters, the decision on where they cast their vote will be influenced by where the future elected Government will focus their spending. In this respect, both sides of politics have made announcements for spending on defence, education, welfare, health, transport and infrastructure. Often, expenditure in these areas will not show an immediate benefit to individuals, but can form the basis for longer term changes. The actual or perceived benefits of expenditure in these areas will differ from person to person, and in this paper there will not be a comparison of the relative benefits from such expenditure. For many however, reform or changes to areas such as taxation or superannuation have a more immediate impact because of their ability to influence shorter term actions. To help provide you with an overview of the differences (or in some cases consistency) in positions, the following is a comparison of the more significant positions proposed by both sides of politics, drawn from announcements during both Budget week itself, and at other times as both sides have positioned themselves towards the upcoming election.


Personal taxation

Both the Coalition and Labor parties are in agreement on the need to provide additional tax relief to low and middle income earners. There is also consistency in the view to lift the level of tax offset available to individuals with more than $48,000 of taxable income and up to $126,000. Both sides are in agreement on a maximum offset of $1,080 being available to those with taxable incomes between $48,000 and $90,000 and a gradual phase out of the benefit up to a taxable income of $126,000, with the changes to have effect for the current financial year (ie from 1 July 2018).

Difference for lower income earners

However, it is in relation to lower income earners that the first difference arises:

  • The Coalition has proposed a minimum tax offset of $255 for those with taxable income up to $37,000 and a gradual increase until taxable income reaches $48,000.
  • Labor have instead proposed a minimum tax offset of $350, again with a gradual increase until income reaches $48,000 at which point the maximum $1,080 offset is available.

Difference for middle to high income earners

  • More significant differences in approach arise when it comes to the issue of the broader reform of the marginal tax rates and thresholds that apply to individuals.
  • The Coalition has already legislated (subsequent to the 2018/19 Federal Budget) for changes to take effect to this system through to 2024/25. In this year’s Federal Budget, the Coalition announced further changes.

Under the Coalition policy the following changes will occur:

  • From 1 July 2022, the current taxable income threshold of $37,000 where an individual moves from a 19% marginal tax rate to a 32.5% marginal tax rate will rise to $45,000
  • a $4,000 increase in the threshold level announced in the previous Federal Budget. At the same time, the upper threshold for application of the 32.5% tax rate is scheduled to rise from $90,000 to $120,000 of taxable income
  • From 1 July 2024, whilst in government the Coalition has already legislated for the existing marginal tax rate of 37.0% that would then have applied to taxable income between $120,001 and $180,000 to be removed, with the same marginal tax rate to then apply to taxable income between $45,000 and $200,000. In this year’s Budget, the Coalition have indicated their intent to reduce that applicable marginal tax rate from 32.5% to 30.0% from 1 July 2024. The existing 45.0% marginal tax rate would then apply to taxable income above $200,000.

The Labor party is not supportive of this level of reform to the personal marginal tax rates and thresholds, specifically not to the changes due to take effect from 1 July 2024. If elected, we would expect the Labor party to look to legislate for the proposed 2024 changes not to take effect, although it is not clear to what extent they would seek to make changes to the existing rates and thresholds due to apply from 1 July 2022.

However, what the Labor party has proposed is the re-introduction of the 2% “budget repair levy” for those generating taxable income greater than $180,000. In recent times Labor have confirmed this effective increase in the highest marginal tax rate from 45% to 47% (excluding Medicare) would be a temporary increase until 2023.

Business taxation

In the 2019/20 Federal Budget, the Coalition announced that small businesses would receive an extension of the ability to immediately write off (ie deduct for tax purposes) the value of an eligible asset. This immediate write down will be extended to 30 June 2020, and the write off value lifted to $30,000 (from $20,000) for assets purchased after 7:30pm AEST on 2 April 2019. Additionally, they proposed that the definition of a small business eligible for this will be increased from business valued at up to $10 million to those valued at up to $50 million.

The Labor party has indicated it would support this measure, although it has proposed a broader measure they have termed the “Australian Investment Guarantee” that would allow any Australian business (irrespective of its size) to immediately deduct 20% of the purchase price of any eligible asset purchased that is worth more than $20,000.

Negative gearing and capital gains tax (CGT)

The Coalition haven’t announced any changes to the taxation rules on negative gearing arrangements and capital gains discounting. As such at this point we have to assume that their position is to maintain the status quo.

The Labor party has however announced changes, restating their policy position prior to the 2016 Federal election. Whilst there has been a lot discussed about these changes, as a reminder the Labor party position is as follows:

From 1 January 2020, negative gearing will only be permitted in respect of a geared investment into newly constructed housing purchased on or after that date. Any deductions for geared investments (whether property, shares, or managed funds) purchased from that date will be limited to the assessable income generated by the investment. Any excess interest costs can be added to the cost base of the asset for determining the level of any future capital gain.

  • For assets purchased on or after 1 January 2020 that would be entitled to a 50% CGT discount on sale under existing rules, that discount will be reduced to 25%.

Grandfathering arrangements will apply to geared investments and CGT calculations for assets purchased before 1 January 2020. That is, the current rules allowing negative gearing deduction and a 50% CGT discount will continue to apply to those investment assets.

Refund of imputation credits

The Labor party remains committed to amending the law such that where an individual or super fund has excess imputation credits remaining after calculation of its tax payable, those excess imputation credits will be forfeited, rather than refunded. This change, which is due to take effect from 1 July 2019, is a return to the position that applied before 1 July 2000.

A “pensioner guarantee” exemption is available to allow for the refund to continue in specific circumstances.

The Coalition’s policy position is to allow the refund of excess imputation credits to continue.

Taxation of distributions from discretionary trusts

The Labor party has stated that where a distribution is made from a discretionary trust (such as a family trust) to a beneficiary aged at least 18, that distribution will be taxed at a minimum of 30%. If the beneficiary’s effective tax rate is less than 30%, they will not receive a refund of the difference. If it is higher, they will need to pay the difference as additional tax. Some trusts (eg testamentary trusts) will be exempt from this change.

The Coalition has not announced any policy position in this area.


Given the significant changes to superannuation that largely took effect from 1 July 2017, the Coalition did not make many announcements around super in the 2019/20 Federal Budget. However, the changes they did announce can only be viewed as positive. Broadly the changes announced will, from 1 July 2020, allow someone with less than $1.6 million in super to:

  • Make contributions to super without the need to meet a work test until they turn 67. Currently the work test applies from your 65th birthday.
  • Receive a spouse contribution until they turn 75. Currently, a spouse contribution can only be received before the receiving spouse turns 70.

The Labor party has previously made a number of announcements around superannuation however, which include the following:

  • The annual contribution limit for non-concessional (after tax) contributions will be lowered from $100,000 to $75,000. It is expected the requirement to have less than $1.6 million in order to qualify to make these contributions will continue to apply.
  • The level of adjusted taxable income a person can have before an additional 15% tax is applied to concessional contributions made to their super will be lowered to $200,000 (from the current level of $250,000).
  • The ability to carry forward any unutilised concessional cap space for up to 5 years to allow a greater concessional contribution cap in the future (subject to certain criteria) will be removed.
  • The changes that took effect from 1 July 2017 to allow all eligible taxpayers to claim a deduction for contributions made to their super fund will be reversed, and the position that applied before that change will be reinstated.
  • A ban on future borrowings within a superannuation fund.

What are the next steps?

With an election set for 18 May 2019, the policy positions for both sides largely remain just that – announcements of their stated intent if they were successfully elected.

Even when it becomes known who is able to form Government after the election, the measures will still need to be successfully passed through the parliamentary processes and it is possible that the final version of these measures could be different to that which has currently been stated. It is important therefore not to rush out and take action on what is currently just a potential future outcome in case changes are made.

The best course of action however is to continue to monitor development on both sides of politics through the election and subsequent parliamentary process to ensure informed decisions can be made at the right time.

Superannuation needs to modernise.

How did Australia, which rightly prides itself on having one of the most stable and resilient economies in the world, end up cleaning up the messy and damaging aftermath of a savage Royal Commission into our financial sector?

Financial services is – and has been for some years – the largest sector in our economy, bigger than mining, bigger than agriculture. We are a nation of suits, not hard hats and Akubras.

The exponential growth of our massive financial services sector all started with compulsory superannuation 27 years ago. Trillions of dollars of Australians workers savings have poured into super funds since 1992. This waterfall of money, compounding into larger and larger lumps every single day, kick-started a financial services sector that grew at a sustained and ever-increasing rate, like nothing we’ve seen before – a mining boom without the busts.

The unprecedented size, power and clout of our financial services sector is extraordinary. Only three other countries in the world have pension systems larger than ours – the US, UK and Canada – and their populations dwarf ours.

The upside of our strong super system is that it gives us a bedrock of financial stability, a pool of liquidity that protected us during global shocks like the GFC and the Asia market meltdown. Is it just a co-incidence that we’ve had exactly 27 years of uninterrupted economic growth – the same number of years we’ve had compulsory super?

The downside is that the system has outgrown its current structure – but the guaranteed inflows provided no incentive to reform outcomes for consumers. Those waterfalls of super money, now almost 10 percent of our wages – kept coming. Some got sloshed over the side of the bucket, but there was always more pouring in.

Amazingly, 80 per cent of Australians still default their super, meaning they make no choice of fund. Every time people move jobs, they are defaulted into yet another super fund. This has left us with the travesty unearthed by the Productivity Commission, the 10 million zombie super funds soaking up $2.7 billion of fees and insurance premiums every year. Reforms to deal with consolidation of this waste are still to pass our Parliament.

While light on super reform recommendations, Commissioner Hayne has sensibly echoed the Productivity Commission in suggesting we stop the problem at the source by making it easier for workers to default once. At last, people will be able to carry their account with them between jobs, like a tax file number, also allowing them choice to change funds if they wish.

This means that when people are defaulted for the first time, we need to make sure we get it right. The out-of-date ties between the superannuation and the industrial relations systems have ring-fenced the default system from market competition and efficiency for too long. The Fair Work Commission chooses which funds are listed in Awards. Today, many of these are poorly performing funds from which there is no escape.

The industrial relations system also encourages poor behaviour from super funds trying to win over employers to use their super fund. Commissioner Hayne called for a stronger framework to ensure funds aren’t “treating” employers with fancy meals or sports tickets to try to win business. Removing employers from the equation entirely is a much more effective way to ensure their choices don’t impact their employees’ retirement savings.

The answer is to create a strong safety-net for consumers, by raising the bar for all funds that want to be considered a MySuper default and letting individuals do the rest. Why shouldn’t individuals be able to choose from a list of all the funds that meet this standard, knowing that there is effectively no wrong choice?

Despite the size of the superannuation system it’s taken a Royal Commission and a Productivity Commission to highlight the fact that members best interests are not served by a system that’s not fit-for-purpose.

Commissioner Hayne’s recommendations, particularly on superannuation, must stiffen the spines of industry and politicians from both sides of the aisle to finally design a compulsory superannuation system that works for all Australians. If we fix super, we go a very, very long way to fixing financial services.

Author: Sally Loane, CEO of the Financial Services Council.
Original article:

Active Investment Success Relies on Finding a Top Personal “Trainer” to do the Heavy Lifting

A mate recently cancelled his gym membership at a popular city health club, citing lack of motivation, high monthly fees and a general malaise about “just not getting results’’.

Out of interest, I asked him what his training regime looked like.

A brisk walk on the treadmill, he confessed, followed by a quick sauna and an obligatory large iced-coffee (with cream and ice-cream) in the club lounge afterwards.

Those stubborn kilos are still hanging on for dear life.

Comparisons can be drawn between my friend’s story and the heated – often hysterical – active versus passive investment debate dominating financial news headlines in recent months.

Proponents of active investment, quite rightly, argue for its superior ability to outperform the market over the long-term, with astute investor-led analysis and individual market research informing which stocks to include in any given portfolio. But active management is far more than just stock picking and here lies the often unseen value. Active management utilises all the tools available to achieve a tailored outcome for investors; asset allocation that considers the return you need at the risk you can live with, dynamic management to help avoid downside risk and ‘smooth’ the ride, precise factor exposures and even tax strategy – there is no one right way to invest for everyone. Each investor has a unique set of goals, real-world constraints and risk preferences.

This is contrary to passive investing, which follows the index, relies on trends and is often based on exchange-traded funds.

The Australian market is dominated by two sectors – banks and resources. And the top 20 Australian-listed companies account for 47% ($804 billion) of ASX200, leaving the remaining 180 stocks to make-up the remaining $900 billion.

The inherent risk with a passive Australian shares strategy tracking the S&P/ASX 200 Index is that it will overweight companies that have gone up in price and, therefore, have greater representation in the Index. So, when they fall, the portfolio hangs on for the ride from the peak to the trough – with painful consequences for total returns.

The bottom line is – markets are cyclical, what is winning today could lose tomorrow.

A philosophy that rewards past performance at the expense of future prediction isn’t an intelligent, strategic approach to creating wealth.

Also, it’s important to understand the distinction between cost and value. There is no disputing that passive strategies typically have lower fees and have done a good job of beating ‘average active managers’ (their term not ours). The key word here is average – an average manager will probably deliver average results. Our advice is to only use an excellent active manager – one who has the runs on the board, with a disciplined and robust process that is bigger than any key individual and will endure beyond the current group of people.

Find an active manager who reports their fees. Transparency is king when it comes to trust and building strong long-term relationships.

Warren Buffett once put it simply.

I just advise looking at as many things as possible and you will find some bargains. And when you find them you have to act, Buffet said.

The world isn’t going to tell you about great deals, you have to find them yourself and that takes a fair amount of time.”

The prevailing truth is that price doesn’t dictate a great company. Good investors must do proper due diligence in determining whether, firstly, they’ve found a great company and, secondly, if it’s a great company at a great price i.e. it can be a great company but the price might already reflect that in which case it is not a bargain.

There are no shortcuts. This takes thousands of hours of quantitative research, face-to-face meetings, stress testing analogies and scrutinising their balance sheets, and ongoing monitoring.

That’s the beauty of astute, wise and experienced (‘above average’) managers, they invest their time, energy, experience and the muscle to do the heavy lifting for their clients and the results speak for themselves.

Here at FinSec building sustained long-term wealth for people is at the core of ‘why we do what we do’. And, although no investment manager can ever promise they will always beat the market (if they do, run in the opposite direction) long-term wealth is only achieved with a smart, strategic and transparent investment policy and an in-house investment committee accountable to it.

It’s an approach any ‘above average’ manager should be able to prove and is best illustrated by an example of our own performance plotted below.  (Blue line is the index compared with FinSec’s performance represented by the red balls).


* FinSec Partners performance compared with index June 2010 – July 2017

Which brings me back to my mate.

Him not shedding his winter weight, of course, wasn’t the gym’s fault.

He just didn’t have the right training schedule and he could have done with the disciplined, rigorous support of a qualified and experienced personal trainer who knew how to get the best out of him to enable him to achieve his goals.

SMSFs gear up for advice


Advised self-managed superannuation fund (SMSF) trustees are more confident about achieving their desired retirement income than non-trustees, according to research commissioned by nabtrade and the SMSF Association.

The research says about 53% of SMSF trustees are more likely to be receiving financial advice than non-trustees (about 30%). Illustrating the value of financial advice, about 72% of advised trustees are confident of being on track to achieve their desired retirement income as opposed to 66% of non-trustees.

According to the Intimate with Self-Managed Superannuation report, there is a continued move by trustees from the “do-it myself” culture to a “help me do it” approach. NAB head of SMSF solutions Gemma Dale said SMSF trustees taking an active role in managing their savings helps ensure continued confidence.

“As we’ve seen over the last decade, SMSFs are not a flash in the pan. As these preliminary findings show, SMSF trustees continue to show a preference for direct investment and are looking for prudent ways to manage risk in uncertain times,” Dale said.

“While Australian shares and cash continue to dominate portfolios, low interest rates are driving interest in asset classes outside of cash, such as fixed interest and international shares.”

SMSF Association chief executive Andrea Slattery said another interesting finding was the focus on risk by those trustees who understand their SMSF investment strategy.

“The most commonly cited factors in developing the strategy are the overall risk of the portfolio (65.8%), diversification of the fund’s investments (63.4%), and the risk of the fund’s investments (61.6%),” Slattery said.

“The prevailing attitude of de-risking is evident among trustees who allocate at least 10 per cent of their SMSF to cash, the asset class that is universally perceived as less risky.”

The research was conducted between November and December 2014 with 468 SMSF trustees and 532 APRA fund members surveyed.

Article first appeared in the Financial Standard, Monday 13th July 2015

Knowledge and Clarity: Changes to Inactive bank accounts

On 18 March 2015, the Assistant Treasurer the Hon. Josh Frydenberg announced that the Government will increase the time frame for which bank accounts and life insurance policies must be inactive before their proceeds are transferred to ASIC.

The period will be increased to 7 years from the current period of 3 years, reversing the legislation of the former Government.

The proposed change will take effect from 31 December 2015, and will require legislative amendments to the Banking Act 1959 and the Life Insurance Act 1995.

Children’s bank accounts

Children’s bank accounts will be exempt from the legislative requirements to transfer to ASIC, in recognition of the long term nature of these accounts.

Privacy and security

The Government will also make changes to protect the privacy of individuals that have had the proceeds of inactive accounts transferred to ASIC, to address concerns around identity theft.

Currently ASIC is required to publish an online Unclaimed Money Gazette with detailed personal information, including name, last known address and the amount of money unclaimed.

The Government will remove the requirement for ASIC to publish this and will restrict Freedom of Information (FOI) requests to an individual’s own details.

Australia’s Apathy

There is currently around $700 million in lost bank accounts and life insurance policies held with ASIC. Information on unclaimed bank accounts can be found on the MoneySmart website.

In addition Australia has 6 million lost or ATO held super accounts totalling approx. $18 billion. More information can be found on the ATO website or by visiting Super Seeker .
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The Conversation: Superannuation and Tax

The Abbott government’s tax discussion paper released earlier this month, has thrown open the doors to a broad ranging debate on tax reform. One of the central themes is of course superannuation, can we expect to see it’s earnings kept tax free when the budgetary pressures created by an ageing population are considered? (Spending on the age pension is due to rise from the current 2.9 per cent of GDP to 3.6 per cent or approx. 180 billion dollars in 2054-55, source Intergenerational Report 2015). According to Joe Hockey “it will be difficult”.

The issue; the tax free nature of retirement incomes from super, have been labelled by many as unfair and nothing but a “tax cut for the rich”. We can only hope that the term “rich” is used with perspective and geared more towards the 475 Australians (out of 24 million) with superannuation account balances exceeding $10 million and not the masses in the middle who, in the past, were told to save for retirement, and accordingly did so responsibly and prudently.

The majority of Australians desire a superannuation system that is sustainable and equitable, but exactly how this is achieved promises to be a hot topic leading into the May Budget. The current system is complex and there is room for improvement but before the lobbyists and ‘experts’ dive in with their proposed reforms, perhaps as a nation we should first understand what it is we are trying to achieve – Is super  intended to replace, complement or improve upon the age pension? It is difficult to have the answer when we cannot agree on the question!

Following are some of the biggest myths cited when it comes to superannuation tax concessions – a little clarity, so you can join the conversation with confidence.

MYTH: Superannuation is not helping reduce the government’s spending on the Age Pension

FACT: Super saves the government $7 billion in Age Pension expenditure annually, and these savings will only increase as the system matures

Superannuation is boosting incomes and providing a lifestyle in retirement that is better than that which can be sustained on the Age Pension alone. Around 32 per cent of those aged 65 in 2013 were fully self-funded in retirement, up from 22 per cent in 2000. This number is projected to rise to 40 per cent by 2023.

MYTH: Superannuation tax concessions cost the budget $30 billion annually – more than the total spending on the Age Pension

FACT: The actual cost of tax concessions is around $16 billion a year

Tax concessions applied to superannuation concessional contributions are not significantly skewed towards high-income earners, and, in fact, support the bulk of the working community to save for their retirement. The Association of Superannuation Funds of Australia (ASFA) analysis of data from 2011/12 found that around 75 per cent of the tax concessions applied to contributions went to those paying either of the (then) middle income marginal tax rates of 30 per cent or 38 per cent: those earning between $37,000 and $180,000 a year.

MYTH: The most important tax concessions received by high-income earners relate to superannuation

FACT: High-income earners get the most benefit from concessional capital gains tax treatment, negative gearing and exemptions for the family home

The bulk of the wealth of high-net-worth individuals is in the form of shareholdings or property, both residential investment properties and commercial real estate. Around $360 billion is held in superannuation by those with more than $1 million in super. This is just over 20 per cent of the $1.6 trillion investable assets held by high-net-worth individuals.

For most high-net-worth individuals, tax arrangements relating to capital gains, negative gearing and the family home are likely to have more impact on the achievement and maintenance of wealth than superannuation tax concessions.

MYTH: Only high-income earners make salary sacrifice contributions

FACT: Many middle-income individuals make salary sacrifice contributions

Only around 35 per cent of employees with incomes above $150,000 a year make salary sacrifice contributions. Around 85 per cent of salary sacrifice contributions relate to employees with incomes below $150,000 a year. Over half a million Australians earning between $40,000 and $80,000 a year make salary sacrifice contributions.

MYTH: Most people take a lump sum from their super when they retire, spend it all on a big holiday or to pay off debt, then end up on the Age Pension

FACT: The majority of superannuation assets end up in income stream products when people retire

There is no evidence that the majority of retirees are using their super to pay off debt or using a lump sum to fund the purchase of boats, cars and overseas trips before going on the full Age Pension.

The vast majority of Australians are very sensible with their retirement savings. The great bulk of larger balances are retained in the superannuation system in order to generate ongoing income in retirement. In 2012/13, around $45 billion in superannuation assets were invested in phased drawdown income-stream products, compared to just $8 billion taken as lump sums.

MYTH: Compulsory superannuation has not increased household or national savings

FACT: National and household savings have been substantially lifted by compulsory super

The household savings rate has increased by around five percentage points from five per cent in 1992, when compulsory superannuation was first introduced, to around ten per cent in 2013/14.

MYTH: Government funds spent on superannuation tax concessions would be better directed at helping other areas of the economy

FACT: Superannuation provides broad economic benefits that are the foundation for growth and prosperity

Superannuation plays, and will continue to play, an important role in providing the foundations for economic activity and prosperity. It currently lifts household savings by around 2 percentage points of GDP or nearly $40 billion a year and, with the increase in the compulsory Superannuation Guarantee from 9.5 per cent to 12 per cent, this is expected to rise to 2.5 percentage points of GDP. Higher levels of domestic savings reduce the cost of capital in Australia, increasing investment by Australian businesses, which drives stronger economic growth.

MYTH: Private superannuation savings could be confiscated and that process has already started

FACT: Superannuation entitlements and account balances are strongly protected by law including constitutional requirements that property can only be acquired on just terms

No political party in Australia has a policy that would involve the nationalisation of superannuation savings

Myths and Facts Source: The Association of Superannuation Funds of Australia (ASFA)


Changes to Centrelink assessments mean less age pension!


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Concessionally assessed, deeming provisions… unless you are a trained financial expert, determining how the changes to Centrelink assessment rules will affect your individual circumstances can be confusing. The good news is, it doesn’t have to be and there are a number of ways to minimise the impact. This particular legislation however, does come with a deadline (January 1, 2015) so it is critical that you seek advice regarding your options sooner rather than later.

The changes: The rules in regards to how your pension is assessed for Centrelink entitlements changes on January 1, 2015. These changes became law on 31st March, 2014. Going forward, normal Centrelink deeming rules will now be applied to superannuation account-based income streams. Currently these income streams are concessionally assessed for Centrelink purposes, which results in higher entitlements. According to the rules, indefinite grandfathering will apply to any superannuation pensions that are in place by January 1, 2015.

Who will be affected?

  • Retirees who change their superannuation product on or after January 1st, 2015 will be subject to the new deeming rules.
  • Retirees who choose to commute their superannuation pension on or after January 1st, 2015 will be subject to the new deeming rules.
  • Anyone looking to claim or getting close to qualifying for a pension, needs to do so before January 1st, 2015. If they are not receiving the pension by this time their super pension will be subject to the new deeming rules.

How will it affect you?

Currently, retirees whose Centrelink entitlements are affected by the income test, may choose to optimise their entitlements by investing in non-deemed investments, such as an account-based pension. An investment into an account-based pension entitles you with a non-assessable amount to reduce your chosen income payment. This often results in a much lower income assessment and, therefore, a potentially higher Centrelink entitlement.

From January 1st, 2015 new account- based superannuation pensions (started on or after this date), will be subject to deeming (applied when assessing a person’s eligibility against the Age Pension Income Test). This investment will be treated for example like a share or term deposit and may no longer be ‘income test friendly’.
This may result in a much higher income assessment and, therefore, a potentially lower Centrelink entitlement.
Those who may be most affected by the new deeming rules are individuals with additional income sources such as Government superannuation pensions (including pensions from overseas).

What to do:

The new rules will have a number of implications for many Australian’s and their retirement strategies. A good financial planner will be able to provide clarity around the issues and show you a range of likely outcomes. The important thing is to seek advice and plan now!