Is your super better after budget 2020

Gov is introducing “stapled funds”

1. Your super fund will be “stapled” to you and your employer will be required to contribute to this fund.
2. From 1^st July 2022, your employer will be able to access info of your super account to contribute to via ATO site to avoid duplication.
3. Super choice is still the best option
4. The default fund is to be used only if employee does not have current super and has not chosen a fund.
5. Please make sure that you research super funds and make an informed decision. Very rarely I would ever recommend accepting a default fund as they tend to be generic, with not many features you might need, and not with a great investment choices.

Introduction of “stapled funds” will allow for reduction of unintended multiple accounts, with duplication of fees, insurance, and consequently lost earnings

Introduction of a new gov website MySuper

1. Introduction of new gov website –MySuper – designed to introduce more visibility and relative performance
2. Super funds will be required to report the underperformance – subject to annual performance test
3. If super fund fails in 2 consecutive years, will not be permitted to accept new members, unless performance improves.
4. Requirement for trustees to act in the best financial interest of members
5. I don’t really know how that has been calculated, but apparently those measures are expected to improve a typical Australian retirement fund by around $60,000 over the life of the fund.

This idea is still subject to debate – so watch this space.

In relation to the YourSuper calculator, the danger is that members really needs to understand the super as an entity and be able to compare like for like.

This calculator is not comparing fees, does not take into account your particular needs such as insurance for example or any specialist investments you might want to have included in your portfolio.

Gov reconfirmed previously announced COVI-19 response package, which was: 

1. Temporary access to super – 2x $10K last financial year and this financial year till 31 December 2020. – so please remember it is only till the end of the calendar year and not financial year.
2. Temporary 50% reduction to minimum pension drawdowns to account -based pensions and market linked pensions for last financial year and current financial year.
3. So no new benefits have been added here.

 Positives of the budget for superannuation environment:

1. No messing or fiddling with superannuation – unlike speculations prior

2. $30bil in expenses coming out of the superannuation – so any way to reduce those expenses for the benefit of members is beneficial

3. Introducing trustee responsibility to act for the best financial interest of members is positive, I am just a little stunned that this is not a given part of trustee responsibility and has to be separately legislated, but hey, maybe I imagine a perfect world. I just hope trustees will not see this as an excuse to increase their trustee fees in order to implement those measures in your super

4. 80% of Australians are disengaged from their money – most people don’t do budget, don’t check their super, don’t check fees and charges, don’t choose investment portfolio- so introduction of the calculator might make people take more action and be more engaged.

5. I don’t disagree with naming and shaming underperforming super funds as the system is designed to let consumers know if their fund is performing and if it is worth staying with it, but it is taking into account only one consideration, which is performance. As explained before there are many other factors why particular super fund might be good for you, and judgement on the performance front is not a fair one. But it will also drive the competition, hopefully creating a better outcome for consumers

6. Simplifying the process of super when applying for a new job,

 Negatives:

7. It is disappointing to see that the planned increase of SG has not been confirmed

• Current 9.5% in 2020-21
• Was supposed to increase to 10% om 2021-22 – this is another huge hit especially for low income earners.

8. There is nothing in the budget to reduce the superannuation gender gap created by wage equity, and the time off work women take for the family.

9. What’s worse, most part-time jobs are filled with women earning up to that new 19% tax threshold income of $45,000.

And this is when, as promised, I want to explain the issue of the low-income superannuation tax offset

Before the threshold was $37,000 and with that level of income, employer super contributions that were subject to 15% contribution tax, were effectively paying higher tax than your income tax rate.

 In order to fix this issue, the government introduced the low-income superannuation tax offset (LISTO) of up to$500.

 However now, that the 19% tax rate has been increased to $45,000 all tax payers with income between $37,000 and $45,000 will effectively pay more tax via employer SG than they would have if money was paid as income, because the low-income superannuation tax offset LISTO stopped at $37,000, as per prior legislation.

 Again, considering that we have over 705,000 women being affected by this, is just not adequate.

 Self-funded retires and part-funded retirees would be very disappointed with this budget – nothing in it for them.

If you would like to read about the Budget’s impact on PENSION & AGED CARE – click here

If you would like to read about the Budget’s impact on YOUR TAX – click here

by:  Katherine Isbrandt CFP®
Money Strategist & Retirement Planner
Principal of About Retirement