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Superannuation

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

By | Financial advice, Superannuation | No Comments

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

Know Your Super

How well do you know your super?

By | Superannuation | No Comments

Recent research shows some interesting insights and a few worrying trends into how Australians view their Superannuation.

The Financial Services Council ING Direct Superannuation Consumer Report shows compelling support for our Super system, with 89% of respondents viewing Super as a means of saving for retirement. Additionally, approximately 72% of respondents were able to say roughly how much they have in their account at the moment. On the other hand, concerning evidence suggests 74% of workers let their employer choose the Fund their Super contributions are paid into (‘default fund’).

Other key findings showed that there is uncertainty over life insurance, with one in four respondents unsure about whether or not they have life cover through their Fund.

48% of respondents were aware they could choose between different investment options and about the same proportion couldn’t state what fees they were being charged by their Super Fund.

The report highlights the fact that many Australians pay little or no attention to their Super, often because the money is unreachable until retirement and thus they don’t see it as something they need to be concerned with yet. However, as Super is likely to be one of your largest assets on retirement, it is actually very worthwhile to spend a bit more time getting “up close” to your Super and ensuring you are aware of your Fund’s details.

As a guide, a worker aged 30 earning a salary of $50,000 annually can accumulate around $324,000 in super savings by age 65 – and that’s just relying solely on employer contributions and assuming average investment returns.

It’s likely that you would have received your annual Super Fund statement in respect of the 2017 financial year. Take a look and review what fees you are paying, if you have life cover through your Fund and what the Fund’s underlying investment strategy is.

Many Australians have their Super in a ‘balanced’ style of Fund with strong exposure to shares. A more conservative, cash-based investment strategy could mean more stable (and lower), returns on your Super over time.

Take an active approach and engage with your Super. To discover more about why Super is such an important investment for your future and how you can maximise its potential, contact Revolution Financial Advisers to make an appointment with us.

know about super

What young people often don’t know about super

By | Financial advice, Superannuation | No Comments

If you’re like 56% of young Australians, you probably couldn’t say exactly how much money you have in superannuation, but according to the Association of Superannuation Funds of Australia (ASFA), what you’ve got in super may easily outweigh what you’ve got in your everyday bank account.

We take a look at the research which also highlights that the majority of those under age 29 strongly support super as a good way to save for retirement, even though many underestimate the amount of money they’ll need after they finish working.

How much the average young person has in super

ASFA found around 25% of Australians aged 15 to 19 had a super account, as did approximately 75% of those aged 20 to 24.3

While average balances were not that large, ASFA said they were rather substantial compared to what most young people had in their bank account.

ASFA pointed to figures from the Australian Bureau of Statistics, which showed the average super balance for those aged 20 to 24 was around $5,000, with that figure escalating to more than $16,000 for 25 to 29-year-olds.

What additional findings revealed

Key points from the ASFA research showed:

  • More than 60% of young Australians have multiple super accounts, with 30% reporting trouble in finding their old accounts;
  • Young people who have multiple accounts are potentially at risk of eroding their super savings because they’re paying multiple sets of fees and charges;
  • Nearly 10% of Australians under 29 are checking their super balance daily, which is important as it’s likely to be one of the biggest investments they’ll ever have;
  • On average, young people expect they’ll need $625,000 to retire, while those aged 60 and over expect they’ll need a much bigger sum of around $1 million.

Super tips for young people

  • If you earn more than $450 in a calendar month, your employer is required to make super contributions to a fund on your behalf at the rate of 9.5% of your earnings.
  • If you’re under 18, contributions are only payable if you work more than 30 hours a week.
  • If you are employed, you should check your payslip and your super account transaction records to make sure you are getting the contributions you are legally entitled to.
  • If you aren’t getting what you think you are owed, speak to your employer.  The Australian Taxation Office can also help you with information and in recovering any unpaid contributions, with non-payment of super affecting about 690,000 Australians annually.

What about insurance inside super?

Each super account you have will typically have a fixed administration charge of at least $100 a year and if you’ve taken out insurance through super, premiums will also be deducted from your balance.

While more than 70% of Australian life insurance policies are held inside super, and it may be beneficial for you depending on your circumstances, you should regularly review your preferences, as more than 25% of people under age 29 are unsure whether they have cover, let alone the right type.

Where to go for help

While retirement might seem like a lifetime away, remember, the more informed you are about super from a young age, the better off you may be down the track.

Revolution Financial Advisers can help you review and understand your current superannuation position.  Contact us to make an appointment.

 Source: AMP News & Insights

Superannuation contributions

Upsize your super with downsizer contributions

By | Superannuation | No Comments

During January 2018 legislation passed that will enable people aged 65 or over to make additional super contributions of up to $300,000 per person from the proceeds of the sale of their home from 1 July 2018. These are known as ‘downsizer contributions’ and they can be made on top of the existing contribution caps, without having to meet certain contribution rules and restrictions.

The opportunity

The downsizer contribution rules remove some of the barriers that prevent or restrict the ability to make super contributions at age 65 or over.

Provided certain other conditions are met (see below) eligible people will be able to contribute up to $300,000 per person (or $600,000 per couple) from the proceeds of selling their home on or after 1 July 2018.

The contributions won’t count towards the concessional (pre-tax) or non-concessional (after-tax) contribution caps and there is no maximum age limit. Also, the ‘work test’ (for people aged 65 to 74) and the ‘total super balance’ test won’t apply.

Key requirements

There are a number of conditions that will need to be met to be eligible to make downsizer contributions, including:

  • The individual must be aged 65 or over at the time the contribution is made;
  • The property must have been owned by the individual or their spouse (but not necessarily both) for at least 10 years prior to the disposal;
  • The contract for sale must be entered into on or after 1 July 2018;
  • The property must qualify for the main residence capital gains tax exemption in whole or part, so properties held purely for investment purposes won’t qualify;
  • The contribution must be made within 90 days of the change of ownership;
  • An election needs to be made to treat the contribution as a downsizer contribution;
  • No tax deduction can be claimed for the contribution.

Other conditions may also apply. For more information, please visit the ATO website at https://www.ato.gov.au/

Key considerations

There are some key issues that should be considered when assessing whether making downsizer contributions could be a suitable strategy, including:

  • The property being sold to fund the contributions doesn’t have to be the current home. It can be a former home which meets the requirements. Also, a new home doesn’t need to be purchased;
  • Once contributed, downsizer contributions will count towards the ‘total super balance’ which could impact capacity to make future contributions;
  • Downsizer contributions can’t be transferred into a tax-free ‘retirement phase income stream’ if the ‘transfer balance cap’ has been used up. The transfer balance cap is $1.6 million in 2017/18;
  • If the transfer balance cap has already been used up, the contribution must remain in the ‘accumulation phase’ of super, where investment earnings are taxed at a maximum rate of 15%;
  • Money held in the accumulation or retirement phase of super is assessed for both social security and aged care purposes.

Could you benefit from downsizer contributions?

If you are thinking about selling your home after 1 July 2018, Revolution Financial Advisers can help you decide whether making downsizer super contributions is a suitable strategy for you and assess other options.

Boost your retirement income with salary sacrifice

Boost your retirement income and save tax with salary sacrifice

By | Superannuation | No Comments

By contributing into your super, you can reduce the amount of tax you pay while adding to your future retirement income.

What is salary sacrifice?

Put simply, salary sacrifice is where you pay a portion of your pre-tax salary or wages as an additional contribution to your superannuation account.

How does it benefit you?

When you choose to make super contributions through a salary sacrifice arrangement, the key benefits for you are:

You can pay less tax – If your annual income and concessional (before-tax) contributions total less than $250,0001, these super contributions are taxed at a rate of 15 per cent, which will generally be less than your marginal tax rate of up to 47 per cent.

You can add to your super more efficiently – If your marginal tax rate is above 15 per cent, every dollar from your pre-tax pay you put into super through salary sacrificing is worth more to you than that dollar in take-home pay, making it a tax-effective way to boost your super.

You choose the contribution amount – The amount of pre-tax pay that is salary sacrificed into your super can be adjusted to your budget which could help you maintain your current lifestyle. Adding even a small amount a fortnight could potentially increase your super balance at retirement. However, if you earn below $37,000 there may be limited advantage in a salary sacrifice arrangement. Instead, as a low-income earner you can take advantage of the government’s low-income super contribution (LISC) which is a payment of up to $500 per annum directly into your super fund.

How much can you salary sacrifice?

The current annual cap for concessional (before-tax) contributions, including salary sacrifice contributions and employer Super Guarantee (SG), is $25,000.

It’s important to note that any contributions made above the maximum concessional contributions cap will be taxed at your marginal tax rate (plus Medicare). There will also be a charge to cover the cost of collecting this tax later than normal tax.

How can you get started?

Step 1: Contact your payroll or human resources team to confirm whether they offer salary sacrificing.

Step 2: If they do, you need to look at your income and expenses, and calculate how much of your income you can comfortably give up now and invest for your future. That’s where a financial adviser can help you find the most suitable option for your individual financial situation.

Step 3: Then, if you decide to salary sacrifice into super complete the relevant form so your employer can redirect the agreed portion of your pre-tax pay to your super fund. If they don’t have a form it’s best to get this agreement in writing to ensure you can confirm the terms, to avoid any confusion.

What else do you need to know?

Don’t lose your super entitlements – Your salary sacrifice contribution is counted towards your employer contributions. As such, your employer is only required to make super guarantee (SG) payments into your super equal to 9.5 per cent of your pre-tax salary.

To avoid losing any of your entitlements, the Australian Taxation Office recommends that you clarify the terms of your salary sacrifice agreement if you want to ensure your employer still pays you the 9.5 per cent super guarantee.

Salary sacrifice is voluntary – If your employer doesn’t offer or agree to salary sacrifice arrangements and you are under the age of 75, at the end of each year, subject to the concessional contributions cap, and taking into account any previously-made super contributions for that financial year you may be able to contribute to your super account.

Get the right advice

Everyone’s financial situation is different. That’s why it’s a good idea to speak to a financial adviser who can help you secure your retirement income for the future.

Source: Colonial first State

1 If your income plus your before-tax super contributions are greater than $250,000, you’ll need to pay an additional 15 per cent tax on the salary sacrifice contributions that take your income over $250,000.

Downsizing can be an excellent strategy to supplement your income

Would downsizing be worthwhile for you?

By | Self-Managed Superannuation Funds, Superannuation, Wealth Creation and Accumulation | No Comments

It seems to make logical sense. You retire, sell the now cavernous family home, buy a cosier place and use the cost difference to boost your retirement income – win-win right? The answer is – “it depends.”

Downsizing can be an excellent strategy to supplement your income and simplify your lifestyle, but it’s not right for everyone.

Here’s what you need to consider to see if downsizing is the right move for you.

Where you could save

Super: If you own your home outright and choose to downsize, that extra money could substantially improve your retirement income. The attraction of contributing money into super is that investment earnings on money in a super fund are generally taxed at 15%, representing a potential tax saving of up to 34%. This is because when you hold an investment outside super, the earnings are generally taxed at your marginal tax rate which could be up to 49%.

Also, as part of the May 2017 budget changes, the Government announced that individuals who are home owners can, from the proceeds of sale of their principal place of residence, each contribute up to $300,000 to superannuation. This special superannuation contribution will not be affected by the work test and can still be made even if they have a total superannuation balance of $1.6m or more.  However, there are a number of preconditions. First, the sale of the principal place of residence must occur after 1 July 2018; Secondly, the member making this special contribution must be aged 65 or more; Thirdly, the principal place of residence must have been held for 10 or more years. Finally, the downsizing contributions can be made even if the total superannuation balance already exceeds $1.6m.

Mortgage: If you’re still paying off your home, downsizing could help you minimise your repayments or eliminate them entirely. You could even downsize and continue to make the same repayments to pay off your mortgage much sooner.

Utilities: A smaller home typically runs more economically. Why pay to heat or cool space you no longer need? If your new home provides renewable energy options such as solar power, you may even be able to sell energy back to the grid and make money.

Maintenance: Less space to occupy means less space to maintain. In the case of larger properties, downsizing could offer substantial savings on cleaning and garden maintenance.

Travel: Downsizing can help you relocate to a more convenient location. If the local shops, public transport and amenities are all within walking distance, you could make substantial savings on fuel.

Garage sale: Selling your home is a great time to sell any items you no longer want, need, or will fit into your new house. Any money you make could be contributed towards moving costs.

Costs to consider

Home value: If you sell your home during a market lull, you could lose some or all of the equity you’ve built up. This could eat into, or erase entirely, the cost saving you make by purchasing a less expensive property.

Fees and commission: Home selling is a highly competitive market. To ensure your home is positioned favourably to sell, you may need to appoint a real estate agent and potentially pay for marketing services, which can cut into your profit margin.

Moving costs: If it’s been a while since your last move, you might be surprised at how much it costs to pack up and transport all of the items you’ve accumulated. That’s why it’s a good idea to offload all the items you can live without before your move. Why pay to transport items you no longer need?

Strata fees: If you purchase an apartment you’ll have to pay quarterly strata levies. Although these fees can end up saving you money in the long term, compared to paying for the maintenance of your home and yard, they will eat into your profit margin in the short term.

Stamp duty: You’ll have to pay stamp duty to buy a new home or apartment so you’ll need to include this cost in your calculations.

Storage costs: One drawback of buying a smaller home is you have less space to store your treasured belongings. If you run out of room, you may need to purchase additional storage which can add up quickly.

Doing the sums

Balancing the potential savings and costs of downsizing can be tricky, and that’s before you take all the potential lifestyle impacts into consideration. At Revolution Financial Advisers, we can help you work out if downsizing makes sense for you as a part of a tailored financial plan.

Source: MLC

Understand your superannuation

Understand your superannuation

By | Superannuation | No Comments

The goal of superannuation is to accumulate money to provide you with an income in retirement. To achieve this, the fund will normally invest in a wide range of assets.

Due to the long-term nature of the investment this will usually include shares, property, bonds, cash and other types of assets. These will be both Australian and international in order to provide further diversification.

This is your retirement income so it is essential you take an interest in your super fund and its investment options particularly when there is so much choice.

Some important points to consider:

  • Most super funds offer a choice of investment strategies. Study the options and select the one most appropriate to your circumstances and goals;
  • Because of the long-term nature of your investment it is important to include “growth” type assets such as shares and property. Even if their short-term performance is unknown, they will invariably provide a better return over periods of 5-10 years and more;
  • By having a diversified range of investments you minimise the risk of poor returns from one asset class;
  • Just because you are nearing retirement doesn’t mean you should have a short-term strategy – you may well be drawing a pension from your super account for the next 20-30;
  • Remember that superannuation is not an investment in itself – it is a tax structure. The investments are held within the super fund and the fund is taxed at concessional rates to encourage you to save for retirement. But you have the choice of how to invest.

Superannuation can be confusing or boring to many people but don’t forget your quality of life in retirement depends upon it – it’s too important to ignore.

Make an appointment with us to explore your options further and take control of your superannuation.

Things to consider to Boost your Super.

Boost your Super in 3 easy steps

By | Superannuation | No Comments

Want to see your super grow faster? Here’s how you can — by choosing what happens to compulsory contributions from your employer.

Make the super payments from your employer go further by choosing an investment strategy that suits your stage of life and retirement goals. Boost your super by salary sacrificing part of your income to supplement your employer contributions. By rolling over all your super into one account, you can save on fees and maximise your savings.

Putting money into your super can be a great way to secure your future, and in Australia, we’re lucky to have a system that helps us grow our retirement savings through compulsory contributions from our employers. These are known as superannuation guarantee (SG) payments.

Even though SG payments are your employer’s responsibility, that doesn’t mean you should ‘set and forget’ your super. If you leave all the decisions to your employer and your super provider, you may not get the greatest benefit from these compulsory contributions. That’s why it’s worth taking a proactive approach towards growing your nest egg. Here are three things you can do today to make your SG payments from your employer work harder for you in the long run.

Step 1: Consolidate your super

Have you got all your super in one place? If you’ve changed jobs, different employers might have made your SG payments to different funds over the years. This means you could have ‘lost super’ in accounts you’ve forgotten about. Before you switch, make sure you understand what this means for any personal insurance you hold through your super. You should also check if you’ll be charged any fees for leaving your current fund. We would always recommend seeking the assistance of a financial adviser before consolidating your super funds.

If your super is in multiple funds, you also have to pay separate administration fees to each fund, which eats into your retirement savings. On the other hand, if you roll over all your super into a single fund, you’ll not only save on fees but you’ll also find it easier to keep an eye on your money.

Luckily, it’s simple to track down and consolidate your super by setting up a MyGov account online.

Step 2: Tailor your investment mix

Once you have all your super in the one place, you should decide how you want to invest it.

While your employer keeps making SG contributions, your super will continue to grow. You can make these payments work even harder by choosing an investment strategy that’s right for your life stage. To do this, you need to consider your retirement goals and how long you have to reach them.

When you’re young and have many years of work ahead of you, you also have enough time ahead to ride out the highs and lows in investment markets. This means you could take advantage of a growth investment strategy with the potential to deliver higher returns over the long term.

On the other hand, if you’re planning to retire and cash in your super in the next five years or so, then it may make sense to choose a more conservative investment strategy. Your returns will probably be lower than with a growth option, but they’re also likely to be more stable.

Step 3: Add a little extra to your super

Although the contributions you receive from your employer will make a big difference to your retirement savings, they’re not the only way to build up your super. You can supplement your employer’s SG payments by salary sacrificing part of your pre-tax income — which will make your super grow even faster.

To set up a salary sacrifice arrangement, ask your employer to deposit a part of each pre-tax earnings into your super account. You can choose how much you’d like to put in — up to a maximum of $25,000 per year.

Every extra bit that you put into your super now will pay off in the future. What’s more, you could also make a major tax saving, since the amount you salary sacrifice will be taxed at the low rate of 15%. Before you consider adding more into your super, make sure you understand the different types of contributions made into your super fund as the Government has set limits to how much you can contribute.

Get help from an expert

When you’re planning for your retirement, it can be hard to know if you’re making the right financial decisions. That’s where we can help.  To find out how you can boost your super, please contact Revolution Financial Advisers to make an appointment and discuss your situation with us.

Source: Colonial

Difference between a Super and Mortgage.

Super v Mortgage

By | Superannuation | No Comments

The pros and cons of using your spare income to either pay more off your mortgage or increase your super need to be weighed up. The direction you take depends on a few factors such as your age, how much you earn, your level of debt and your income tax rate.

Typically, if you are in your twenties for instance, you may not want to save for a retirement that is 40 years or more away. A better strategy might be to invest in a home where you can build some equity before you start considering a retirement strategy.

However, the older you get, the more you might want to invest in your superannuation and begin the transition to retirement financially.

Things to consider if you take the mortgage route:

  • Paying no tax on growth in the value of your family home;
  • Access to redraw facilities if you need a quick flow of cash;
  • Equity which you can borrow against;
  • Reliance on the property market as a long-term strategy;
  • Changes to interest rates.

Things to consider if you contribute more to your super:

  • Boosting retirement income;
  • Tax-effective as tax on investment returns is capped at 15%;
  • Tax-effective when you salary sacrifice;
  • Potential benefits of Federal Government co-contributions if you earn less than $51,813;
  • Inability to access funds if you are under retirement age.

Questions to ask yourself

 If you are at the time in life where you feel it’s better to add more to your super, here are some questions to consider:

  • How much do you owe on your mortgage?
    • Sit down and do your sums to figure out how much money is going into repayments, and how long it will take you to pay off your mortgage.
  • How is your mortgage set up?
    • Do you have an interest-only strategy at the moment and how long is the life of your loan?  It might be worthwhile considering if this needs to be changed.  Switching to an interest only loan may also give you more cash-flow that can be invested into your super.
  • Is there cash looking for a better home?
    • You may have more money floating around than you think and some can go into growing your super balance.
  • Do you have the capacity to salary sacrifice?
    • Your employer may allow you to salary sacrifice some of your income which will be taxed at a maximum rate of 15%, saving you a tidy sum in tax if your income is currently being taxed at a higher rate.

At Revolution Financial Advisers we can help to assess your personal situation to identify how much cash you’ve got and whether it could be better placed to give you more money in your retirement.