We’ve all heard the word ‘unprecedented’ so many times this year, it’s almost nauseating, but you would have to agree – this year’s budget is like nothing we have ever seen.
I am not going to spend time writing about the proposed small business start-up deductions, Fringe Benefit Tax concessions or Job Hiring credits, just know that these initiatives serve to help the engine room of our economy. When we finally come out of this Covid19 nightmare, we can only hope that every little initiative has contributed to Australia’s financial wellbeing in some way.
The reduction in the Jobseeker supplement and the move to apply asset testing and waiting periods will certainly test many who have been impacted by this crisis. We hope that adequate job opportunities will be available into the future, that your next property will be affordable, that your shares will keep paying decent dividends and your super monies will continue to grow and eventually afford you the retirement that you deserve!
Speaking about super, as a retirement specialist, that’s where it’s at for me. It is my dream that the superannuation system will go from strength to strength over the years and that all future legislation will factor in how drastically lacking we are as a nation when it comes to our retirement savings. I won’t even get started on how few individuals can self-fund their retirement and how frightening the prospect of losing the Age Pension is for future generations.
Proposed Super Changes
So let’s talk about the proposed super changes. Over the last few years, there has been a legislative focus on removing this ‘major problem’ we have with people having multiple super accounts. The Budget now proposes that we resolve this problem by mandating that when an employee starts at a new business they must nominate their existing super fund, rather than applying for the default super option under their new employer. If the employee doesn’t make that super choice nomination, their new employer will be able to access a platform via the Australian Tax Office, which provides them with all of the details they need on that individual’s existing superannuation account.
To be clear, the main problem with having multiple super accounts is the money spent on ‘unnecessary’ insurance premiums and super administration fees. As someone who regularly works with clients with disabilities I may have a different view to the majority, but many times over my career I have seen an ‘unnecessary’ insurance policy built into super-serve to fund a client’s early retirement and cover their medical expenses for years to come. Perhaps the government should provide more services to help people understand their superannuation and insurance holdings, so they can make their own informed decisions, rather than forcing them to opt-out of default super and unintentionally refuse the associated insurance, which could in fact become a lifeline for them later in life.
Then we have the new concept of testing the worth of a super provider by determining if their flagship investment has ‘underperformed’ against its peers in terms of returns. This is also fraught with issues. There is a well-known problem with, let’s call them ‘default’ funds, having the luxury of applying naming conventions that in no way match the underlying investments. If your Balanced fund has 20% more exposure to risk than my Balanced fund, how can it be called Balanced? Are we further incentivising super providers to increase their exposure to high-risk assets just to meet this performance criteria set out by the Government, instead of addressing the true issue with transparency?
The Budget – Not All Bad!
I admit the Budget is not all bad. I am happy to report that the move to increase the maximum amount of Self Managed Super Fund members from 4 to 6 is back on the table. I am also relieved that pre-retirees will have more flexibility with the removal of work test requirements up to age 67. The legislative change on the cards, to extend the age limit for the ‘bring forward rule’ from age 64 to 66 is another blessing. This change would give many of our clients the option to work for another couple of years before they consider downsizing and contributing property proceeds to super.
As far as Account Based Pensions go, the 50% reduction in the minimum income drawdown has been extended to June 2021, which will further protect retirement savings. Two $250 Economic Support Payments will be made to recipients of Age Pension, Disability Support, Carer’s Allowance and Department of Veterans Affairs payments. Surprisingly, it has also been extended to those receiving Family Tax Benefits and those who are entitled to the Commonwealth Seniors Health Card, who may not be receiving any other social security benefits.
The Pensions Loan Scheme and the funding of an additional 23,000 Home Care Packages and Nurse training will further assist those who require additional support.
If you’re still working, you will benefit from the change to income tax brackets. The raising of the upper threshold will save an employee on a salary of $100,000 around $2,500 per year, taking account of the Medicare Levy and other available offsets.
As usual, there is a lot to digest and we will only begin to witness the real impact over time. The extension of the First Home Loan Deposit Scheme, the new tax concessions and the recent announcement on deregulation of the lending system will no doubt have a positive impact in the short term. The potential long-term impact all of this will have on our economy is a conversation for another day.
All we can control is our little piece of the world. If we stick to our long-term financial goals, keep our eyes open and plan for contingencies, we are halfway there.
Until next time…