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Time for a quick check-up – Superannuation & Insurance

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Superannuation is not something we usually give a great deal of thought to, particularly if retirement is 10 years or more away. But perhaps it is worth investing a few moments to consider some recent changes, particularly if you have one or more super accounts that have become inactive.

 

When the government talks about a super account being inactive, they are generally referring to an account that has not received contributions or rollovers from another super fund in the previous 16 months. That is an important number to keep in mind.

 

If you have a close look at your super account statement, you may notice that insurance premiums are being deducted. This happens because many superannuation funds are required to provide a level of default life insurance cover.

 

In last year’s Federal Budget, the government announced changes to super that were designed to stop the erosion of super balances by fees, charges and unnecessary insurance premiums.

 

One important change that is due to take effect from 1 July 2019 relates to insurance for inactive account holders.

 

Where a member of a superannuation fund has an inactive account, that is, the account has not received contributions or rollovers from other super funds within the previous 16 months, the fund will be prevented from offering or maintaining insurance for the member.

 

This means that super fund members may lose valuable insurance protection.

 

The legislation places some onerous conditions on trustees of super funds.

 

Firstly, where insurance is already in place within a choice or MySuper product, the trustees of the fund are required to identify, as at 1 April 2019, member accounts that have been inactive for a period of more than 6 months. They must write to each member before 1 May 2019 advising the insurance will be discontinued from 1 July 2019, but that cover may be continued if the member wishes, and setting out the manner in which the member can opt-in to retain their insurance.

Secondly, trustees must inform members of their fund on an ongoing basis when an account has been inactive for nine months, then again at 12 months and 15 months.  

 

If a member wishes to maintain their insurance cover within their super fund, they will need to take proactive steps to ensure it is retained. This may be done by making a contribution, rolling over a benefit from another super fund, or simply instructing the super fund, in writing, that they wish to retain their insurance cover. This is referred to as ‘opting-in’. Insurance is vitally important for many people.

 

It is worth taking time to review the various super accounts you have with particular reference to the insurance that you may have. If you no longer need the insurance, then asking your super fund to cancel it may help prevent the erosion of your super balance. However, if you need the insurance, taking steps to ensure it is maintained.

 

Source:  Peter Kelly | Centrepoint Alliance

What does the election result mean for our super?

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With the return of a Coalition government, we can expect to see some of the super initiatives announced in the 2019 Budget, and in legislation that lapsed when the election was called, being reintroduced to the Parliament.

So, we can expect to see:

Increase in contribution age limits

The 2019 Budget included a proposal for people aged 65 and 66 to be able to make super contributions without having to meet the current “work test”. This proposal is now expected to be introduced to Parliament in the near future. It is due to take effect from 1 July 2020.

 

Extending the age limit for the three-year bring forward

Under current law, an eligible person may bring forward up to three year’s non-concessional contributions and contribute up to $300,000 in one year, provided they were aged 64 or younger at the start of the financial year in which they make their contribution. This age limit is to be extended to 66 from 1 July 2020.

 

Extending the age limit for spouse contributions from 69 to 74

People who make contributions for an eligible spouse up to 74 years of age will be able to claim a tax offset of up to $540. The age limit is being increased from the current 69 years. This will apply from 1 July 2020, however, a receiving spouse aged 67 or older will need to have met the work test.

 

Insurance opt-in

While legislation affecting insurance held inside super for people with an inactive account (haven’t made contributions for 16 months) has already been enacted. We can expect to see the measures extended to those with account balances less than $6,000 and for members under 25 years of age.

In each case, members will need to opt-in if they wish to have insurance cover through super.

 

SMSF membership to extend to 6 members

The legislation relating to the increase of SMSF membership to 6 people (up from 4) lapsed when the election was called. We can expect to see this legislation being re-introduced into the new Parliament.

 

Opting out of Superannuation Guarantee

Where high-income earners work for more than one employer, their superannuation guarantee contributions often result in a breach of the concessional contribution cap. The Government has plans to allow affected employees to opt-out of superannuation guarantee for all but one employer so as to avoid breaching the concessional contribution cap of $25,000.

 

Salary sacrifice arrangements

Integrity measures covering aspects of salary sacrifice contributions to super and their potential impact on superannuation guarantee contributions lapsed when the election was called. We can expect to see these measures reintroduced by the new Coalition government.

 

If you have questions about these proposed measures, and opportunities they present, you should consider meeting with a qualified financial planner.

 

Source:  Peter Kelly | Centrepoint Alliance

Federal Budget Overview – 2019

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On 2 April 2019, The Hon Josh Frydenberg delivered his first Budget as Federal Treasurer.

The good news is that the Budget has forecasted a return to surplus of around $7.1bn in 2019-20. Australian will earn more than it spends!

Ten million low and middle-income earners are the winners as they will receive an immediate tax cut, which is being delivered by way of an increase in the Low and Middle-Income Tax Offset (LMITO). The increase will be available for the next three years and will see the LIMITO more than double. An amount of $1,080 for Australians with taxable income of between $48,000 and $90,000. A more modest offset is available for those on lower incomes, and the offset cuts out when taxable income reaches $126,000.

It has been estimated that by 2024, 94% of Australians will have a marginal tax rate of 30% or less.

By contrast, the top 5% of income earners will pay a third of all taxes collected.

Australians who receive a range of government income support benefits will receive a one-off payment of $75 for singles, and $125 for couples, to help with their energy bills. This payment is planned to be made before 30 June 2019.

Superannuation was largely untouched in this year’s Budget, however, from 1 July 2020, people aged 65 and 66 will be able to make super contributions without having to meet the work test and the maximum age spouse contributions can be made is to be extended from 69 to 74.

Infrastructure and health received injections of cash.

Expect to see the skyline silhouetted with cranes. The Government has announced further significant spending on roads, rails, airports and the like.

Included in the Budget was an allocation of $500m to get cars off the roads by building more commuter car parks, therefore encouraging people to travel by train. For anyone who tries to navigate capital city peak hour traffic, this will be welcome news.

Small to medium businesses will benefit from the planned increase in the instant asset write-off for purchases of up to $30,000.

Older Australians have not been ignored with an additional 10,000 aged care home care packages being announced and a further 13,500 residential aged care places being made available. With the aged care system being strained with the increasing demand for services and support this is welcome news but sadly is nowhere near enough.

Additional funding has also been directed towards the delivery of primary and frontline health care.

Legislation will need to be passed in order for the changes to be implemented.

 

Source:  Peter Kelly | Centrepoint Alliance

Budget 2018 – What does it all mean?

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What does this year’s budget have to offer?

With a federal election clearly in the wind, the budget contained a little bit of something for almost everyone.

Unlike the 2016 budget that included massive changes to super, this year’s budget was a lot lighter in terms of super announcements. However, there were a few including:

  1. Allowing people aged between 65 and 74 to make voluntary contributions super in the year after they cease working, without having to meet the work test. This will apply from 1 July 2019.
  2. Increasing membership of self-managed super funds from four to six, from 1 July 2019.
  3. Moving to a three-year audit cycle for SMSFs with good record keeping and compliance history. This will commence from 1 July 2019.
  4. The ability for younger people and those with less than $6,000 in super to opt-in for life insurance cover inside their super. This differs from the current system where they have to opt-out if they don’t want life cover.
  5. Some relief from the risk of breaching the concessional contribution cap for people earning more than a combined $263,157 from more than one employer.

The budget also contained some immediate tax relief for low to middle-income earners with the introduction of a Low to Middle Income Earners Tax Offset of up to $530. This will apply from 1 July 2018 and will be paid as a lump sum at the end of the financial year once an income tax return has been lodged.

There will be tax cuts across the board, however, significant changes, particularly for higher income earners, won’t come in to effect until 1 July 2024.

On the good news front, the planned increase in the Medicare Levy that was due to come in from 1 July 2019 is no longer proceeding.

The big winners from the budget were older Australians with considerable funds being directed to the delivery of residential and in-home aged care services.

The budget makes proposed changes to the Pension Work Bonus to take effect from 1 July 2019, which allows people to earn more from employment and self-employment in retirement without it affecting their age pension, and an expansion of the Pension Loans Scheme. The Pension Loans Scheme enables people to access a government-sponsored reverse mortgage scheme to top up their pension payments.

 

Source:  Peter Kelly | Centrepoint Alliance

Affordable housing – Is super the answer?

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In the 2017 Budget, the Government announced several measures designed to ease the pressure on spiralling housing prices, particularly in the East Coast capital cities of Melbourne, Sydney and to a lesser degree, Brisbane.

I will provide an update on two of the key measures contained in the 2017 Budget.

On 7 September, the Government tabled a Bill in the House of Representatives covering its first two measures.

  1. The First Home Savers Super Scheme (FHSSS)

This initiative is designed to allow intending first home buyers to save for their home deposit through superannuation and then withdraw the savings when the time comes to buy.

A broad outline of the scheme will allow additional contributions of up to $15,000 to be made each year with the maximum amount that may be withdrawn being $30,000 plus investment earnings. For a couple, multiply this by two.

Contributions may be concessional contributions, such as those made under a salary sacrifice arrangement or personal contributions where a tax deduction has been claimed. Or, they may be non-concessional contributions made from after-tax income. All contributions made under the scheme are subject to the usual contribution caps.

Contributions made by an employer in fulfilling their superannuation guarantee obligations – the 9.5% contribution – cannot be withdrawn under the scheme. Only voluntary contributions may be withdrawn.

The FHSSS came into effect on 1 July 2017, however, at the time of writing, the legislation has not been passed by the Parliament.

With that is mind, it might be prudent to wait until there is legislative certainty before making additional voluntary contributions that may be required for a home deposit.

Whether the FHSSS is an appropriate strategy will be very much dependent on individual circumstances. Some appropriate advice, before putting extra money into super, is vitally important.

  1. Downsizer Contributions

In an attempt to free up housing that is currently occupied by older Australians, the Government has introduced legislation that will enable people aged 65 and over, who have owned their home for at least 10 years, to contribute up to $300,000 of the sale proceeds of their home to superannuation as a non-concessional contribution.

These contributions will not be subject to the usual restrictions that apply to making non-concessional contributions.

Once legislated, this initiative is due to come into effect from 1 July 2018. It will only apply to home sales occurring on or after that date.

Whether this measure will make a meaningful difference to the supply of housing is questionable.

One of my biggest concerns is that the primary residence is currently exempt from the assets and income tests for the age and Veterans Affairs pensions. With a very high proportion of older Australians receiving either a part or a full pension, the implications of downsizing could be significant.

Selling the family home and investing any surplus proceeds from the sale into superannuation, or most other types of investment will see money that was previously exempt from means testing now being caught under the assets and income test.

In fact, a couple of modest means who own a valuable home could lose their age pension entirely if they sold their family home and contributed $300,000 each to superannuation as a non-concessional contribution.

However, contributing the surplus proceeds from the sale of a family home, to super will be quite appropriate for some.

Like so many of these initiatives that at first glance seem very attractive, the devil lies in the detail. Whether selling the family home and downsizing simply to get more money into super is an appropriate strategy, will depend on individual circumstances.

 

Source:  Peter Kelly | Centrepoint Alliance