General Information about Financial Advice

Planning to top up your super before 30th June?

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When looking to make personal contributions to super, there are a number of considerations, including:

1. Type of contributions
Super contributions fall into several categories. The main types include:

Concessional contributions
Contributions made by an employer for the benefit of their employees are treated as concessional contributions. They include compulsory contributions often referred to as superannuation guarantee or “SG” contributions. For the 2022-23 financial year, employers are required to contribute 10½% of their employees’ wages or salary to super. This will increase to 11% next financial year.

In addition to SG contributions, an employee may enter a voluntary arrangement to forego part of their salary and request their employer to make additional contributions to super on their behalf. This is referred to as a salary sacrifice arrangement. Depending on personal circumstances, salary sacrificing to super can be very tax effective.

In many situations, individuals can claim a tax deduction for their personal super contributions. These are also treated as concessional contributions.

Concessional contributions are taxed at 15% when they are contributed to super.

For 2022-23, the maximum, that can be contributed as a concessional contribution is $27,500 per person.

However, people with a total superannuation balance of less than $500,000 may be able to carry forward any unused concessional contribution cap that has accrued since 1 July 2018.

Non-concessional contributions
Non-concessional contributions include contributions we make personally or contributions made for our spouse or partner. They are not tax-deductible.

The non-concessional contribution cap is $110,000 for 2022-23 however, people may be able to bring forward up to an additional two-year’s contribution cap and make a non-concessional contribution of up to $330,000 in a single year.

To be eligible to make non-concessional contributions, a person must have a total superannuation balance of less than $1,700,000 and to be able to fully access the three-year bring forward cap, the total superannuation balance must be less than $1,480,000.

Downsizer contributions
In some circumstances, a person, and their spouse, may contribute up to $300,000 (each) of the proceeds from the sale of their home to superannuation.

To be eligible, the home must have been their main residence for at least part of the time it was owned, it has been owned for at least ten years, and they are at least 55 years of age at the time the contribution was made. Contributions must be made within 90 days of receiving the sale proceeds.

Small business CGT contributions
In certain circumstances, a person may contribute the proceeds, or the capital gain arising from the sale of a small business to superannuation without being limited by the concessional and non-concessional contribution caps. Contributions made under the small business concessions are capped at either $500,000 or $1,650,000, depending on eligibility.

Contributing the proceeds from the sale of a business to superannuation can be complex and we recommend appropriate tax and financial advice be obtained.

Government co-contribution
Low-income earners who make a non-concessional contribution to super may receive additional contributions from the government.

The maximum co-contribution is $500. To receive this, a non-concessional contribution of $1,000 needs to be made.

To receive the maximum government co-contribution a person needs to have tax-assessable income, plus reportable fringe benefits and reportable employer super contributions of less than $42,016.

2. Age limitations
Superannuation contributions can generally be made by a person up until the 28th day of the month following that in which they turn 75.

However, mandated employer contributions (i.e. SG contributions) and downsizer contributions are not subject to an upper age limit.

For people aged between 67 and 75 who wish to claim a tax deduction for their personal contributions, a work test needs to be met. The work test requires a person to be gainfully employed for a period of at least 40 hours worked within 30 consecutive days, in the financial year in which they wish to contribute.

3. Claiming a personal tax deduction
When intending to claim a tax deduction for personal contributions, a notice must be given to the superannuation fund informing them of the intention to claim the tax deduction.

This notice must be provided within a prescribed time and before the contribution is applied to a pension account, rolled over to another superannuation fund, or withdrawn from super.

4. Timing of contributions
For contributions to be attributed to the 2022-23 financial year, they will need to be received by the superannuation fund by 30 June at the latest. Some superannuation funds may have earlier closing dates.

Importantly, if making superannuation contributions by electronic transfer such as BPAY or as a direct deposit, some days may elapse between processing the payment and it being received by the superannuation fund. Making contributions early is recommended.

Making additional contributions to super can be a valuable strategy for building wealth for retirement. If you are thinking of adding to your super, speak to your financial adviser.

 

Source: Centrepoint Alliance | Peter Kelly

Do I really need $1million in super to be able to retire?

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Over the years there have been a number of articles published stating people need to have a million dollars or more in super to be able to retire comfortably.

This could be out of the reach for many, if not most Australians.

The real answer to this question is….it depends.

It will depend on several factors including:

1. How much income would I like to receive in retirement?
2. Will my super be my only source of income?
3. Am I entitled to the government age pension?
4. How long will I live?
5. Am I prepared to run down my capital during my lifetime, or do I wish to leave a legacy for the next generation?
6. Do I own my own home, or am I renting?
7. Will I be carrying any debts into retirement?
8. What type of investor am I (conservative, moderate, or aggressive)?
9. Will I need lump sums during my retirement to purchase a new car, renovate the kitchen, or spend on other big-ticket items like overseas holidays?

These are a few of the factors that need to be considered when exploring this question.

Many readers will be aware of the Retirement Standard published by the Association of Superannuation Funds of Australia (ASFA).

First published in 2004, the Retirement Standard provides a detailed budget of the likely costs to support both a modest, and a comfortable lifestyle for Australian retirees. The Standard provides figures for both singles and couples. Furthermore, separate budgets are published for those up to age 85, and those over 85.

Not only does the Standard publish an exhaustive budget for each group, it also provides an estimate of the amount of savings (super) a single person and a couple will need to have to support their preferred lifestyle.

The most recent budget, from March 2022, mentioned for a comfortable lifestyle was $46,494 for a single person and $65,445 for a couple. To support this level of spending, it is estimated a single person will need approximately $545,000 in super, and a couple will need $640,000. It’s anticipated that, at least for part of their retirement, retirees will have their income needs supplemented by the government’s age pension.

ASFA’s projected superannuation balances estimate that the superannuation savings will be exhausted when a person reaches their early 90’s.

The ASFA Retirement Standard has not been without its critics, but up until now it has been the only readily available resource for people wishing to explore the likely costs of living in retirement.

One of the concerns with the ASFA Retirement Standard is it overstates the level of income many people spend in retirement.

Whether this is right or wrong is a question for another day. In the absence of any meaningful alternative, it’s the best we have had to work with. At the end of the day, retirees, and those approaching retirement, will have a gut feel for the level of income they think they will need to support their preferred retirement lifestyle.

Understanding the income, we would like to receive in retirement, is the starting point.

In March 2022, Super Consumers Australia (SCA), an independent, not-for-profit consumer group published a Report “Retirement Spending Levels and Savings Targets”. SCA has partnered with CHOICE.

Like the ASFA Retirement Standard, the SCA report considers retirement spending for singles and couples at a low, medium, and high level. Rather than developing their own budgets, the report relies on spending data available from the Australian Bureau of Statistics.

By comparison, the SCA report suggests the level of income and target savings a homeowning single person and a couple (aged around 67) will need is:

Status Spending Level Spending Savings Required
Single Low $28,000 $70,000
  Medium $37,000 $259,000
  High $50,000 $758,000
Couple Low $40,000 $88,000
  Medium $55,000 $369,000
  High $73,000 $1,021,000

The estimates project the income to be paid through until age 90 and is supplemented by the age pension as it becomes available.

While more research will enable advisers and their clients to make more informed decisions, the issue is an individual one.

We generally have a rough expectation of how much income we would like in retirement.
When that is coupled with other questions around our desire to leave a legacy and importantly, how long that income must last, the amount we need to have saved for our retirement becomes a very fluid number. One size certainly does not fit all.

Planning for retirement is complex and involves many “moving parts”. As most people only get one chance at getting their retirement planning right, the support of a qualified financial adviser is highly recommended.

 

 

Source: Peter Kelly | Centrepoint Alliance

Are Downsizer Contributions achieving their purpose?

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In 2017 the Government announced an initiative designed to reduce the pressure on housing affordability for Australian families.

The initiative, which came into effect on 1 July 2018, focussed on allowing older Australians – those aged 65 or over – to contribute up to $300,000 (and up to $600,000 for a couple) of the proceeds from the sale of an “eligible dwelling” to superannuation without being constrained by the usual age limit, work test, and contribution cap restrictions.

Downsizer contributions, as they are known, are subject to several conditions including a requirement the home must have been the owner’s main residence for at least part of the time, and the home must have been owned for at least 10 years.

Since downsizer contributions first became available in July 2018, approx. $9.4bn has been channelled into the superannuation system.

One of the eligibility criteria for making a downsizer contribution is the requirement a person must be aged 65 or older at the time they make their contribution. In the 2021 Federal Budget, the Government announced plans to reduce this to 60 from 1 July 2022. This change has been legislated.

While the ability for older Australians to contribute surplus proceeds from the sale of their former home to superannuation appears to have been a popular strategy, at least based on the number of technical enquiries we receive from financial advisers, I am not convinced the strategy has fulfilled its intended purpose of making housing more affordable.

When first introduced, the assumption was that older Australians were living in large homes close to the city. These were homes that these same older Australians had raised their own families in and were now occupied by one or two people. The ability to sell the family home and purchase something a little cheaper and contribute surplus proceeds to superannuation seemed like a good idea at the time.

However, since 2018 Australia has seen a massive increase in the value of the residential real estate, not only in capital cities but also in regional areas.

Australian housing prices have been driven by several factors with the largest no doubt being historic low-interest rates, readily available credit, and a raft of other state and federal government initiatives.

While the downsizer contribution initiative presents a wonderful opportunity for older Australians to get more money into super to help fund their retirement income needs, I doubt it has achieved its purpose of making housing more affordable.

Selling a family home is often more of an emotional decision rather than one purely driven by financial reasons. Family homes come with years of memories and are often located close to services, facilities, and established networks of friends and family.

If a decision is made to sell the family home, the ability to make a downsizer contribution may be a bonus. But it should not be the primary driver.

 

Source: Peter Kelly | Centrepoint Alliance

Retirement – Your House v Alternative

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As people approach or enter retirement, their thoughts often turn to retirement housing.

For many, staying in their current home, at least for the foreseeable future, will be their preferred choice.

Retirement represents a major turning point in one’s life and, for some, a change of housing could be part of that transition.

Perhaps it makes sense to move to more suitable accommodation. Something more suited to aging, such a home requiring less upkeep and maintenance, improved security, or being more accessible like having a lift or being on a single level.

Retirement accommodation is not a “one-size-fits-all” solution.

What are the options?

When it comes to retirement housing, there are a multiple options available including:
• Remaining in the current home, be it owned or rented
• Downsize to a newer free-standing home, apartment, or town house in a similar area – perhaps freeing up some home equity to support retirement living expenses
• Moving to another city or town – experiencing a sea-change or tree-change – perhaps to be closer to facilities and family
• Relocating to a retirement village or lifestyle resort
• Packing up and moving into a caravan, RV, or boat and becoming a grey nomad
• Moving in with the kids or other family members
• Relocating to aged care accommodation when declining health suggests this is an appropriate option.

If a move is contemplated, it requires a lot of careful thought and is a decision that should not be rushed or taken lightly.

Sadly, there are many stories of people that have made decisions about their retirement living, only to regret that decision. After selling a former family home and moving, reversing the decision, and going back to the way things were is simply not likely to happen.

Moving to another area
Below are some things that should be considered if planning to relocate to another city or town or to experience a sea-change or a tree-change.

Many people don’t have the luxury of limitless money and are therefore unable to purchase their intended retirement home while still retaining their current home.

Therefore, if the dream is to relocate in retirement, perhaps to some idealistic location or to a place visited during holidays in earlier days, it will often involve selling the current family home to free up cash to allow the dream to come true.

It is a fact that buying and selling a home can be one of life’s more stressful events. It can also be very expensive.

This is not something that should be entered into lightly and considerable planning needs to be done.

If the intention is to relocate to another location in retirement, perhaps one of the more practical suggestions is to rent a home or apartment in your preferred location for an extended period – at least six months.

Doing so will give you time to experience the location, check out the facilities it has to offer, and generally get the “feel” of the place to help decide if that is where you really want to live.

Where the intended retirement destination is a place you experienced at another time, living there on a trial will allow you to see if the “vibe” from past memories is still alive.

If, after “test driving” your planned destination, it ticks all the boxes, steps can be taken for a more permanent relocation.

 

 

Source: Peter Kelly | Centrepoint Alliance

How many super accounts should I have?

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As at May 2021, the Association of Superannuation Funds of Australia (AFSA) stated there were 24.4 million individual superannuation accounts held by Australians.

Every time we change jobs, and our new employer asks for our superannuation fund details so they can make compulsory contributions. If we don’t have those details at hand, our new employer will make contributions to their “default” fund, thereby resulting in a new account being opened.

As a result, many Australians have ended up with multiple, often small superannuation accounts. Sadly, these account balances are eroded over time to a point where, after fees, charges, and insurance premiums are deducted, nothing is left and the account is closed.

There will be occasions where having more than one superannuation account will be intentional. Where an individual wishes to:

• hold stand-alone insurance through super,
• segregate their taxable and tax-free components for estate planning purposes,
• draw a pension while also continuing to contribute, or
• hold money in the superannuation system even though they have reached their transfer balance cap, maintaining multiple superannuation accounts will be appropriate.

One of the inherent risks of having multiple superannuation accounts is the risk the accounts will become “lost”.

Just imagine, you have multiple superannuation accounts with different super funds opened because you have changed jobs a few times. You then move house and forget to advise your various superannuation funds of your new address. As a result, your super funds lose contact with you.

When a super fund has a lost member, they are required to transfer the lost account to the Australian Taxation Office (ATO). The ATO will then attempt to reunite the lost member with their lost superannuation.

The government-run campaign of reuniting members with their lost super has been quite successful, with around 13 million duplicate accounts having been closed or consolidated, over the course of the past few years.

However, there are still many duplicate accounts in existence. Having multiple accounts can result in duplication of fees and charges.

Looking for lost super and consolidating multiple accounts can be done quite simply by checking the superannuation tab in your MyGov account.

Before consolidating super it is important to speak with your financial adviser to ensure consolidation is in your best interest. Importantly, consolidating super may result in the loss of valuable insurance cover.

 

 

Source: Peter Kelly | Centrepoint Alliance