Tag Archives: Superannuation

Who is the boss of your super?

By Robert Wright /August 28,2018/

It’s tempting not to think too much about your super when retirement is still a long way off. After all, it’s growing just fine by itself … right? But the reality is, if you don’t take control now, you might be left with less than what you need when it’s time to put it to use.

Here’s how to be the boss of your super in three simple steps.

Step one: Know what you’re entitled to

If you’re working full-time or part-time for an employer, they generally have to make regular Super Guarantee (SG) payments into your super account. But there are some exceptions, like if you’re:

• earning less than $450 a month
• under 18 and working 30 hours or less a week
• doing domestic or private work for 30 hours or less in a week (for instance, if you’re a part-time nanny)
• an overseas worker temporarily working in Australia and you’re covered by a bilateral superannuation agreement
• a non-resident working overseas but paid by an Australian employer
• a Reserve Defence Force employee (applicable to some payments only).

SG contributions are calculated as 9.5% of your Ordinary Time Earnings (OTE). This includes loadings, commissions, allowances and most bonuses, but usually doesn’t include overtime pay. Your employer also has to keep making SG payments even when you’re on sick leave, annual leave or long-service leave – but not if you take time off for paid parental leave.

Step two: Check that your super is being paid

When you start working for a new employer, they need to give you a Superannuation (super) standard choice form. This lets your employer know which super fund to pay your SG contributions into. All you have to do is provide your fund details and account number.

By law, your employer has to start paying SG contributions into your chosen account on a quarterly basis – and they must start paying any amounts that are due within two months of receiving your completed standard choice form. If you think your employer isn’t making these payments – or they’re paying you the wrong amount – here’s what you can do:

1. Check your super statement to find out how much your employer has been paying.
2. Speak directly to your employer about how and when your payments are scheduled.
3. If you can’t resolve the issue, lodge an enquiry with the Australian Taxation Office and they’ll take steps to investigate.

Step three: Boost your super savings

Employer SG contributions play a vital role in building up your super savings throughout your working life. But they’re not the only way to grow your nest egg.

You may be able to set up a before-tax contribution from your salary, known as a salary sacrifice arrangement, with your employer. This means authorising them to take out a fixed amount or percentage of your before-tax income from every pay, which they then deposit straight into your super. But first, you should speak to your employer about how this arrangement would work for your employment situation.

Alternatively, you can use your own money to make voluntary contributions. In this case, you may be entitled to claim an income tax deduction on your contributions.

An advantage of salary sacrificing or making personal tax-deductible contributions is that your contributions will be taxed at just 15% in most cases, instead of your usual marginal income tax rate. However, it’s important to remember that the combined total of your SG payments, salary sacrificed amounts and your personal tax-deductible contributions can’t exceed $25,000 in a financial year or extra tax will apply.

What if you’re self-employed? You don’t have to pay yourself super, but it’s still a valuable way to save for your retirement.

 

Source: Colonial First State

Superannuation and separation: Who keeps the money?

By Robert Wright /August 28,2018/

A divorce from your husband or wife, or a separation from your de facto, could mean a division of your assets and debts, whether they’re held separately or together, and superannuation is no exception.

Another thing to note is even if one of you hasn’t contributed to super for many years, that person could still be entitled to a percentage of the other’s super.

We explain some of the key points below. And, if you’re a de facto couple living in Western Australia, remember different rules may apply as you’re not subject to the same superannuation splitting laws.

How is super divided?

A superannuation agreement can be put in place before, during or after your relationship, as part of a broader ‘binding financial agreement’. This agreement can specify how super is to be split upon separation or divorce.

If you and your partner don’t have a binding financial agreement in place already but have agreed how you would like super to be split, an Application for Consent Orders can be filed in court without your attendance to formalise the arrangement you’ve both come to.

If you can’t come to an arrangement together, you might instead look to obtain Financial Orders, under which a court hearing will determine how super is to be split between the two of you.

Because there are rules around when super can be accessed (for instance, you may need to have retired from the workforce), remember that splitting super won’t necessarily result in an immediate cash payout, as super is treated differently to other assets and debts.

What does the process involve?

You may want or need to get information regarding the value of the superannuation that is to be split. And, you’ll need to provide various forms to the super fund to get this, which you can locate in the Superannuation Information Kit on the Federal Circuit Court of Australia website (www.federalcircuitcourt.gov.au).

You can do this if it’s your super fund, or your ex-partner’s super fund, but keep in mind fees for providing this information may be payable by the person who has requested the information. Depending on your circumstances, you may also wish to establish a ‘flagging agreement’ whereby the super fund is prevented from paying out any super until the flag is lifted, which may also result in a fee. Once the super splitting order is made, whether by consent or after a court hearing, you’ll also need to provide a copy of the order to the super fund for it to be effective.

Splitting super – what to keep in mind

Some people prefer to avoid lengthy disputes by choosing to forgo some of their entitlements. The trouble with doing this is that it may have significant financial consequences down the track, so it’s important to be armed with all the information you can to ensure the decisions you make are sound.

Working out what you’re entitled to can be complicated, which is why it’s important to seek legal advice, and regarding other financial matters, you may wish to contact us.

 

Source: AMP

How to stay focussed in volatile markets

By Robert Wright /June 01,2018/

Investing in markets means volatility. When done well, you are getting paid for taking on risk. So why is it that sharp drops in the market have such a visceral impact on us? We only have to go back to early February, when markets dropped 4.6% in a few days to recall such a time of alarming headlines and concerned conversations.

The first thing to say about February is that it was far from unusual. Since 1979, there have been 182 five day periods worse than the February decline. It happens, on average, every three months. It’s about as frequent as a 29 degree day in Sydney. Warm, yes, but barely worth a comment. So why do we all feel this way when the markets fall?

The second thing to say, is that it was not unusual and moments of this ilk will happen again. With central banks commencing or stepping up their interest rate hiking cycles and unwinding quantitative easing (QE) stimulus, together with a divergence in monetary and fiscal policies, the result should be greater volatility.

Preparing for the inevitable

So the market just fell. You’re reading headlines claiming billions of dollars of value have been wiped off the stock market in a matter of hours, days. You check into your account and see that your investments have also been affected. What will you do?

What most people do is act. They sell in fear. This is entirely natural, however, it is likely to be the wrong strategy. So what should you do?

For now, the best advice it to do nothing and to seek expert advice. That will feel all wrong. So let’s unpack why that is and what to do to manage those feelings. To paraphrase a recent Wall Street Journal headline, ‘The Share Market Isn’t Being Tested, You Are’.

We need to feel in control

Nothing undermines a sense of control over your investments like a sharp and unexpected stock market fall. The immediate priority for many is to re-establish that sense of control. One of the most tempting means is by doing something, anything. This is linked to a deep-seated part of human nature and manifests in a desire to maintain the illusion of control.

In our daily lives, in order to act, we need to be confident in our ability to make an impact. In most cases this confidence can be classified as overconfidence, but without it we might not act at all. Being paralysed by indecision can be as bad as acting with overconfidence.

Search for meaning

You will probably have a very strong need to know why the market movement happened. It is more than mere interest. Needing to know is linked to the desire to act. Because jumping blind into a strategy feels wrong, we need an insight to give us enough confidence to act. Hence, the pressing need to find out why.

Actions have consequences

Adjusting your market exposure to suit evolving risk and return opportunities can be valuable. However, selling in fear is a powerful behavioural bias that costs investors dearly. If you were to sell in fear in each bear market (20% down) for Australian Equities since the early 1980s, and only return to the market some months later or once a recovery has started, then instead of a compound annual growth rate of 10%pa, you’d have achieved 8%pa. This is a costly bias.

One of many costly biases

There is a panoply of behavioural biases which help us get through the day. They are valuable mental shortcuts that help us act fast, handle information overload and find meaning. Occasionally these mental shortcuts do not serve us well. Investing is one such domain. If everyone is running out of a building, our instinct is to join them, no questions asked. This is a good example of the ‘herding’ bias – after all, the building could be on fire. However, this same bias in the investing context can be costly. Study after study has measured the costs of these biases and estimates range from 1% pa to as much as 6% pa.

What to do

• Recognise that markets are complex.
• Seek advice and consider the impact. Ask yourself – why am I making this decision? Is this investment part of an overall plan? What might go wrong? What does the evidence say?
• Record your decision and why you made it – by tracking your decisions, you can reflect on the evidence and adjust or confirm your approach.

Keep your eyes on the prize

Keep your eyes on the prize, whether that prize is growth, income, capital preservation or a mix. Bouts of short term volatility don’t mean allocations have to change. Remember, this has happened before and will happen again. Selling in fear costs real returns in the long term. Financial advice is the best insulation from these and other biases waiting to erode our returns.

 

Source: Macquarie

How to help ensure your super contributions don’t exceed the caps

By Robert Wright /June 01,2018/

Changes in the superannuation contribution caps, which kicked-in last year, give an added reason to keep a close eye on your contributions.

From 1 July 2017, the concessional (before tax) contributions cap was reset to $25,000 for everyone (irrespective of age).

For those earning a salary in excess of $210,000 or more – the compulsory Employer Superannuation Guarantee of 9.5% will total around $20,000 a year and will see your contributions edge close to the cap. For those making additional concessional contributions, such as through salary sacrifice – they may be close to reaching the maximum if they are earning $180,000 (including superannuation guarantee) and contributing an extra 3% or earning $150,000 (including superannuation  guarantee) and contributing an extra 5%. In certain cases, employers will match an employee’s additional contributions and in this case the concessional cap might be exceeded.

Going forward, the concessional cap will increase in increments of $2,500 (not $5,000 as was previously the case). There is a formula the ATO applies to determine when indexation takes place, and the concessional cap will remain at $25,000 for 2018/19 also.

From 1 July 2017, the annual non-concessional (after tax) contribution cap reduced from $180,000 to $100,000 per year.

However, your non-concessional cap will be nil for a financial year if you have a total superannuation balance greater than or equal to the general transfer balance cap ($1.6 million in 2017–18) on 30 June of the previous financial year. As a result, if you had more than $1.6m in super at 30 June 2017, you cannot make further non-concessional contributions this year. You may, however, still be able to make or receive concessional contributions up to the $25,000 cap.

Provided you are under 65, or aged between 65 and 74 and meet the relevant work test, and meet all other requirements, you may be able to make contributions to super this year. But it is important to monitor your level of contributions as penalties can be imposed where you exceed the relevant caps.

Using the ‘bring forward’ rule for your contributions

There are special circumstances where you may exceed the annual non-concessional cap amount and this is called the ‘bring forward’ rule. The rules have become more complex since 1 July 2017.

How it works is if you are under 65 and have less than $1.5m in super as at 30 June 2017, you may be able to contribute at least $200,000 as a non-concessional this financial year.  If you had less than $1.4m at that time, you may be able to contribute up to $300,000. However, you might not be able to do this if you started using the bring forward rule in either of the last two financial years.  Or the amount you can contribute might be reduced.

The amount you contribute this financial year may impact how much you can contribute in future years, and each year you still need to have less than $1.6m (or the relevant general transfer balance cap for that year) in super in order to make further contributions.

Source: BT