Tag Archives: Retirement

Millions but not all to benefit from 2017 super changes

By Robert Wright /August 28,2017/

With changes to super now in effect, numerous Australians will get a leg up, many being low-income earners.

According to the Association of Superannuation Funds of Australia (ASFA), more than four million Australians will benefit from the super changes that came into effect on 1 July 2017. The industry body said while many would be impacted by new rules and restrictions, millions would benefit from the Low Income Superannuation Tax Offset, the ability to claim tax deductions on personal super contributions and obtain rebates on contributions made to their spouse.

Tax offset for low income earners

ASFA Chief Executive Officer Martin Fahy said of the three-million plus people to receive the Low Income Superannuation Tax Offset, an estimated 63% would be female, adding the average super balance of recipients of the Low Income Superannuation Tax Offset was less than $50,000.

Under the initiative, individuals with an income below $37,000 will receive a refund of the tax paid on their before-tax super contributions (up to a maximum of $500) into their super account. The scheme replaces the Low Income Super Contribution, which ceased on 30 June 2017.

Tax deductions on personal contributions

ASFA highlighted that previously most salary and wage earners could only claim a tax deduction under salary sacrifice arrangements, which not all employers offer. Under the new rules however, ASFA said 850,000 additional people would be able to claim a tax deduction for personal contributions made to their super. The incentive is generally available to anyone between the ages of 18 and 75 that is making a personal contribution, with work test requirements necessary for those over age 65.

Tax rebates on spouse contributions

ASFA said increased access to the spouse contributions tax offset would also see an additional 10,000 Australians who contribute money to their spouse’s super (whether they be husband, wife, de facto or same-sex partner), eligible for a maximum tax rebate of $540 if certain requirements were met. Under old rules, the receiving spouse’s income needed to be $13,800 or less for the contributing partner to qualify for a full or partial tax offset, whereas the income threshold is now $40,000.

Not good news for everyone

While the news for over four million Australians was positive, Fahy said around 800,000 individuals, in a given year, would be impacted by other super changes.

Lower caps and added tax

An estimated 80,000 people would be affected by the $100,000 annual cap for after-tax contributions, which was previously $180,000, ASFA said. Meanwhile, the reduction in the before-tax super contributions cap from $30,000 per year (or $35,000 for those over age 50) would impact more than 250,000 people who make contributions in excess of the new cap of $25,000 a year (which applies to everyone, irrespective of age).

A similar number of people would be affected by additional tax on before-tax super contributions. This is because from 1 July 2017, those earning $250,000 or more have to pay an extra 15% tax on any before-tax contributions, on top of the concessional rate of 15%, bringing the tax rate to 30%. Previously, this tax only applied to those earning $300,000 and above.

Limitations on pensions

ASFA estimated around 110,000 people, many in self-managed super funds (SMSFs), would also be affected by the new $1.6 million transfer cap. Effective 1 July 2017, those converting super into a pension are restricted to a limit of $1.6 million in terms of what they can transfer into tax-free pension accounts, not including subsequent earnings.

Any excess needs to be placed back into the super accumulation phase (where earnings are taxed at the concessional rate of 15%), or taken out of super completely. Penalties for exceeding the cap apply.

Removal of TTR tax exemptions

Around 170,000 people in Australian Prudential Regulation Authority-regulated funds accessing a transition to retirement (TTR) pension and a further 100,000 people with such an arrangement in an SMSF would also be affected.

Investment earnings on super fund assets that support a pension are tax free, however, this no longer applies to TTR arrangements. From 1 July 2017, earnings on fund assets supporting a TTR pension are subject to the same maximum 15% tax rate that applies to accumulation funds.

To ensure you understand how the new rules impact you and what the potential benefits may be, please contact us.

 

Source: AMP

Your options in aged care explained

By Robert Wright /June 26,2017/

With multiple avenues to explore, thinking about aged care earlier rather than later could provide you or your loved one with greater flexibility.

It’s possible that in the future you, or someone close to you, may need some form of care or daily living assistance. With lots of information to sift through and the conversation sometimes a tricky one to approach, we’ve pulled together some information to make navigating aged care an easier process.

The current state of affairs

The Australian government has projected that in 40 years the number of people aged over 100 will be 300 times what it was in the mid-1970’s[1], with an ageing population shining a light on aged care services.

Meanwhile, industry figures show[2]:

• More than 50% of people over age 45 have previously, or are currently, dealing with aged care services for themselves, or on someone else’s behalf.
• The likelihood a woman over age 65 will require residential care in her lifetime is 54%. For men, that figure is slightly lower at 37%.
• The total cost of aged care in Australia is projected to reach around $290 billion by 2055.

Aged care services available

There are several types of aged care services available. Each has an eligibility criteria and an assessment process which can be organised through the government’s My Aged Care initiative.

Options include:

• Help in your own home – if you are generally able to manage, but require assistance with daily tasks, there are various home-care packages available.
• After-hospital (transition) care – if you’ve been in hospital, but need assistance while you recover and additional time to think about the best place to live long-term, this type of service can be provided in your own home or ‘live-in’ setting for 12 to 18 weeks.
• Respite care – this service provides support for you and your primary carer when your carer has other duties to attend to, or when they’re on holiday.
• Residential aged care – this is where you live in full service residences and receive ongoing care and support. If it’s the best option for you, it’s a good idea to research and visit several residences to find the right place in terms of location, services and activities.
• Short-term restorative care – this provides a range of services over eight weeks to help prevent or slow down difficulties with completing everyday tasks. It aims to improve wellbeing and independence, and delay or reverse the need to enter long-term care.

The costs

The costs for after-hospital, respite and short-term restorative care depend on the level of care and how long it’s required.

The fees for an at-home-care package or residential aged care can also vary and will depend on income and assets, as assessed by the Department of Human Services or the Department of Veterans’ Affairs.

With a residential aged care facility there may be one-off payments (or deposits), as well as ongoing fees for care, accommodation and daily living expenses.

If you’re a self-funded retiree, it’s a good idea to seek an income assessment before commencing an at-home-care package or entering residential aged care to avoid paying maximum fees and charges.

Having the discussion

Deciding to have a discussion is the first step. So, if you’re in a situation where you need to approach the topic of aged care, whether it’s for yourself or a loved one, it’s better to do it sooner rather than later.

Remember, it may not be easy and it’s fairly normal for people to resist this type of conversation. For this reason, it’s a good idea to approach the topic as a series of conversations so that you (or your loved one) are in a better position to articulate what you want to happen.

Things worth considering when approaching the topic include:

• Being deliberate about the time and place for these conversations
• Thinking about whether other family members should be included
• Whether relevant paperwork is accessible and in order
• Whether third parties, like the family doctor, could help by offering their perspective.

There are complexities and tax implications to work through when it comes to aged care, including for example whether or not to sell the family home, so it’s a good idea to get professional advice.

 

Source: AMP

[1] http://www.treasury.gov.au/PublicationsAndMedia/Publications/2015/2015-Intergenerational-Report

[2] https://www.superannuation.asn.au/media/media-releases/2015/media-release-26-november-2015

Are you prepared for changes to the Age Pension assets test?

By Robert Wright /November 23,2016/

How the assets test will work in 2017 could increase your Age Pension entitlements, or take some or all of them away.

With revisions to the Age Pension assets test just around the corner, it’s important to understand how the changes could impact you, particularly with part-pension thresholds somewhat tighter than initially projected.

These thresholds are the value of assets you can own (excluding your home) before you lose eligibility for the Age Pension.

Who the changes will affect

The Age Pension assets test changes will affect Age Pension recipients, aged 65 and over. To be eligible for a full or part Age Pension, retirees must satisfy an income test and an assets test, as well as other requirements.[1]

According to reports, changes to the assets test, effective 1 January 2017, will see more than 50,000 additional Australians receive the full Age Pension. Meanwhile, roughly 300,000 retirees on the part pension will have their entitlements reduced, with about 100,000 losing all entitlements.[2]

What’s actually changing in 2017?

The Age Pension assets test thresholds will change.  The cut-off thresholds previously announced were only projections, as Age Pension rates were not updated until 20 September 2016.

Following the recent update to Age Pension rates, the part-pension cut-off thresholds are a bit tighter than previously announced, meaning more people could be affected.[3] The lower thresholds for eligibility for a full pension remain unchanged.

Table one: Full-pension thresholds

If your assets are below the thresholds in table one, you will be eligible for a full pension under the 2017 assets test.[4]

Full pension	Current asset limits	2017 asset limits
Non-homeowner (single)	$360,500	$450,000
Non-homeowner (couple)	$448,000	$575,000
Homeowner (single)	$209,000	$250,000
Homeowner (couple)	$296,500	$375,000

 

Table two: Part-pension thresholds

Table two outlines the assets test cut-off point for those on a part pension. If you have assets above these limits, a part-pension will no longer be payable.[5]

Part pension	Current asset limits	2017 asset limits
Non-homeowner (single)	$945,250	$742,500  (initial projection $747,000)
Non-homeowner (couple)	$1,330,000	$1,016,000  (initial projection $1,023,000)
Homeowner (single)	$793,750	$542,500  (initial projection $547,000)
Homeowner (couple)	$1,178,500	$816,000  (initial projection $823,000)

 

The Age Pension assets test taper rate will increase

This means that pension payments will reduce by $3.00 per fortnight for every $1,000 of assets above the lower assets test threshold. Currently, the taper rate is $1.50 (75c each for couples) per fortnight, which means from 1 January 2017 pensions will reduce at a faster rate.

What assets are taken into account?

The market value of most of your assets is taken into account when calculating your Age Pension. This includes, but is not limited to, things such as:

• Property (excluding your home)
• Motor vehicles, boats and caravans
• Financial investments
• Superannuation if you’re over Age Pension age
• Business assets
• Household contents and personal effects

Upside to losing your benefits

People who lose their Age Pension in 2017 as a result of the changes will automatically be entitled to receive a Commonwealth senior’s health card and/or a low income health care card. These cards will provide access to things such as Medicare bulk billing and less expensive pharmaceuticals.

 

Preparing for the changes

Depending on how the changes may impact you, there are a number of things worth exploring and talking to us about, including:

• How you might replace any lost income if your entitlements are reduced
• How you might be able to trim down your assets before the changes come in, to retain your current entitlements, for example; gifting within annual limits, moving savings into a spouse’s super, or bringing holidays or home renovations forward
• How strategies outside of asset reduction may be able to help—working for longer or reviewing your budget in retirement

To find out how your Age Pension entitlements may be affected, please contact us.

 

Source: AMP

[1] http://www.humanservices.gov.au/customer/services/centrelink/age-pension

[2] http://www.superguide.com.au/how-super-works/300000-retired-australians-to-lose-some-or-all-age-pension-entitlements

[3] http://www.superguide.com.au/how-super-works/300000-retired-australians-to-lose-some-or-all-age-pension-entitlements

[4] https://www.humanservices.gov.au/customer/enablers/assets

[5] https://www.humanservices.gov.au/customer/enablers/assets

Investing for retirement pays off

By Robert Wright /October 06,2016/

More than half of Australians with investment properties or shares are proactively preparing for retirement, according to MLC’s Australia today report[1].

In comparison, only 15% of people without investment properties or shares feel prepared for retirement. It’s clear investing is one way to significantly boost confidence in retirement.

The “Retirement-ready” movement

We’ve all read the stories of the retirement funding or super gap, the shortfalls and the large sums of money required to retire comfortably. Rather than feeling overwhelmed by the savings needed and giving up, many Australians are now becoming ‘retirement ready’ by proactively investing in shares and property, well ahead of retirement.

Proactively investing earlier in life is a way to save the concept of a recreational retirement – that blissful hiatus after ceasing work, when you’re healthy and able to enjoy the rewards of your investments.

Re-defining retirement

Today, retirement means far more than ceasing work and/or relevance – it’s a third chapter in our lives where we can finally stop work, or reduce our work hours and pursue some of our dreams. As long as we have the savings and investments required to support our intended lifestyle.

Are you planning a recreational or partial retirement?

How much you’ll need to save and invest depends on the retirement you’re planning. If your primary goal for retirement is to enjoy leisure pursuits, travel and hobbies, you’re planning a recreational retirement, which will cost more in leisure expenses.

If your main retirement goal is to work part-time, commence an ‘encore career’, offer to regularly volunteer or study something new, you’re planning a partial retirement and you’ll be subsidised to an extent by continuing income and potential tax advantages of working beyond age 60.

Continuing work

Pre-retirees and retirees are clearly divided at the concept of continuing work. If you have enough super savings and investments, you can choose whether you want to continue working. But for many, that’s not an option. Many baby boomers don’t want to disappear into irrelevance and they don’t want to step into old age. If you have enough super, you have a choice whether you want to work or not.

Small savings today can give you more control later

Whichever retirement you’re planning, if you want the flexibility to make choices about your future, you’ll need a level of financial power to give you that freedom.

Small reductions in weekly spending can add up substantially over the long term. Increasing your contributions to super, investing in property and shares and seeking help from a financial professional can give you much more flexibility and control over your lifestyle when you retire.

Financial professionals help motivate you to invest

MLC’s Australia Today report found that people who use the services of financial professionals were much more likely to feel prepared for retirement, with a key factor being professionals motivating people to build their super balance.

In a hypothetical question, respondents were asked: “If someone gifted you with $50,000, what would you do with the money?” Those who used the services of a financial professional contributed significantly more to their super than those without professional financial advice.

Contributing more to super can be an effective way to save on tax and provide for a more secure financial future in retirement.

 

Source: MLC

[1] MLC and IPSOS, Australia today report, Aug 2016.