Friday, December 16, 2011

News Update

As another year draws to a close, we thought it might be useful to sign off for 2011 with a summary of some key announcements that we can all look forward to in 2012, or not, as the case may be.
The Legislative Amendment Bill to increase Superannuation Guarantee (SG) contributions passed the lower house on 23rd November.  
This bill also abolished the upper age limit (currently age 70) applying to SG obligations on employers.  The increases to the SG rate are as follows:
  • 1 July 2013 to 30 June 2014  9.25%
  • 1 July 2014 to 30 June 2015  9.50%
  • Then an increase of 0.50% each financial year
  • From 1 July 2019  12.0%
The current 25% pension drawdown relief for minimum payments from account-based, allocated and market-linked (term allocated) pensions will continue for the 2012/13 financial year.
The superannuation concessional contribution limit of $50,000 for people aged 50 and over will be halved to $25,000 for 2012/13 under current legislation, though the Government is considering legislative change to retain the current (2011/12) $50,000 limit.  Under 50's will continue with the current $25,000 limit for concessional contributions and this won't be indexed until 2014/15 when it is expected to rise to $30,000.

The maximum government co-contribution will be halved to $500 from 1 July 2012.  People with incomes up to $31,920 will be eligible for the maximum with the amount phasing down for incomes up to $46,920.

The tax concessions available on employment termination payments (ETP), as well as the ability to direct all or part of the payment to a superannuation fund under transitional arrangements, will cease on 30 June 2012.   From 1 July 2012, all ETP's will be taxed at the standard rate with no ability to direct these amounts to superannuation.

The Australian Tax Office (ATO) has recently released a draft ruling (SMSFR 2011/D1) defining key concepts that relate to self managed super funds borrowing to invest. This draft ruling clarifies the meaning of a 'single acquirable asset' and confirms that borrowing can be used for repairs and maintenance on the acquired asset but cannot be used to pay for improvements.

Revised impairment tables have been introduced from 1 January 2012 for the assessment of new claims for the Disability Support Pension (DSP) and for current DSP recipients undergoing a medical review.  As a result of this change, it will be potentially more difficult to gain or retain a DSP from 1 January 2012.financial advice
So that's it from us for 2011 and we'll see you back here early next year.  From everyone here at The Trusted Adviser, we wish you the most wonderful Christmas and prosperous 2012! 

Thursday, December 8, 2011

Superannuation is NOT an investment!

If we had a Twitter ‘follower’ for every time someone said "super is a bad investment" we'd be as popular as Ashton Kutcher. Seriously, it's frustrating to hear this line at the BBQ's, in the cab and over the Christmas turkey because super is not an investment and none of these social opportunities give us enough time to set the record straight.

Super is a structure, a vehicle within which you can invest, and there are many compelling reasons to do so.

So why are so many Australians disengaged from their super?  Perhaps it's a symptom of the super rules being so complex (this is a common reason), or perhaps it's a feeling of "no control"? I think we'd have to be honest here and throw apathy in the mix and the very unfortunate and too familiar attitude of "I can't have it now - so I’ll worry about it later".

Let's see if we can redirect your thinking.

Whilst super on its own won’t drive your investment returns, it definitely has the potential to improve them.  Your returns will be driven by the investments you choose, more specifically the asset classes you invest in like cash, property or shares.  Fees and taxes also matter and we will be talking more about these in future blog posts.

So superannuation is a structure, just like a Company or a trust is a structure, and each of these structures have their own rules and offer different tax outcomes.

Take Barry for example, his marginal tax rate is 38.5% (incl. medicare levy). He has $10,000 pre-tax income available for investment and he wants to invest defensively, targeting 6%pa.  He can choose to do this inside or outside of super.

If he pays tax first and invests outside of super in his own name, he has $6,150 to invest on day 1.  However if he salary sacrifices the $10,000 into superannuation, he has $8,500 to invest from day 1.  Remember, he is investing in the same assets – targeting 6%pa.  This means his super asset gets a head-start of more than 38% over his non-super asset and this advantage compounds over time.

Just last month, the current Assistant Treasurer and Minister for Financial Services and Superannuation Bill Shorten MP, addressed Financial Planning Professionals in Brisbane and discussed the impact of compulsory super savings in Australia.  He said

 “Superannuation savings in Australia are in excess of 1.3 trillion dollars, the size of our Gross Domestic Product.  If the American economy had made the same decisions that we made, they would have had 12-13 trillion dollars in savings! The most recent turmoil in North America, I suggest to you, would have been far less drastic, their economic recovery far quicker, the problems they’ve had far more shallow, if they had that pool of national savings.”

We Australians are so fortunate.

These are compelling arguments and when you couple this with our Government about to step-up the compulsory contribution level from 9%pa to 12%a, we must invite all Australians to re-connect with their super.  IT IS our future.

Image: Salvatore Vuono / FreeDigitalPhotos.net