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Expert advice on early superannuation access as a result of COVID-19

Under the coronavirus stimulus package released and revised by the Australian Federal Government on 22 March 2020, individuals in financial trouble due to the negative economic impacts of COVID-19 will be able to access their superannuation funds early. However, while the option is available, it is recommended that individuals only consider withdrawing from their super in the case of absolute emergencies and treat it as a last resort.

With the new rules on superannuation, workers whose incomes are reduced by at least 20% due to the COVID-19 outbreak are allowed to take $10,000 out of their super for the 2019-20 financial year and another $10,000 for 2020-21. Individuals will also not need to pay tax on any withdrawn amounts and existing welfare payments will not be affected either.

While the introduced early access to superannuation funds may be inviting for newly unemployed workers, it is important to consider whether the temporary relief is necessary and worth foregoing super funds available for long term investment. For example, even when accounting for Australia’s slowing economy in the coming years, $10,000 is predicted to be worth over $65,000 in another 30 years.

Especially for younger workers who are less likely to have access to other savings, the choice to give up future savings for current comfort is a difficult one. Experts instead are recommending Australians to apply for the other payments and benefits made available to vulnerable Australians through the coronavirus stimulus package, such as added $550 fortnightly supplements to Australians on JobSeeker payments and other welfare recipients and pensioners.

Experts also predict that the Australian Government will introduce more stimuli for increased cash flow in the Australian economy and more payments for unemployed, struggling and vulnerable Australians in the case of COVID-19 becoming more of a serious economic issue. Hence, withdrawing funds from your superannuation account should be considered a last resort and not for the sake of unnecessary temporary relief.

In addition to being allowed early access into individual super funds, superannuation minimum drawdown rates will also be temporarily reduced by 50% for account-based pensions and others similar until 2021.

The Government has also reduced the upper and lower social security deeming rates by a further 0.25 percentage points, with upper at 2.25% and lower at 0.25% which will come into effect on 1 May 2020.

Posted on 2 April '20, under super. No Comments.

Investing in shares vs property in SMSFs

Shares and property are two popular investment options for those with a self-managed super fund (SMSF). However, they both have very different attributes and choosing the one that will achieve the best outcome for an SMSF depends on your personal goals and situation.

While the price of shares can vary drastically, property is a relatively stable asset, making it appealing to those who want more security and predictability. Property prices are also negotiable unlike shares, and you can generally borrow money at a lower rate for property purchases.

It may seem hard to find the perfect investment property, but older and undercapitalised properties can be renovated for profit. However, returns from property rentals can be dented due to factors such as land tax, utilities and rates, maintenance and tenancy vacancies.

Shares are more dynamic and volatile than property. One advantage is the accessibility of investing in shares, as you can enter the share market with a few thousand dollars – much less than what you need to invest in a property.

Maintaining a portfolio of quality shares that pay tax-effective dividends may be a good way to fund retirement. With the right portfolio allocation, shares also have the potential to provide a better, stronger income than property rentals, as long as that income is sustainable and increasing.

Property can generally be used as a wealth-creation tool, while shares can create a reliable retirement income. For those who can afford to put more money into investments, it may be a good idea to consider investing and diversifying in both. If you’re unsure about which investment option is right for you, seeking financial advice may be the best option.

Posted on 19 March '20, under super. No Comments.

Becoming socially conscious of where you super invest

Whether you are a newcomer to the workforce or have been working full time for 30 years, you must have come across the concept of superannuation. Chances are, you’ve already been steadily building your retirement funds in one of the 500 Australian superannuation funds but are still unfamiliar with how exactly your super is being managed and where your super fund is investing your money in.

With the beginning of a new decade and social issues on the rise, it is time to take a more conscious stance on what you are doing with your super and what causes you are supporting through the employment of your money through your super fund.

A recent investigation into Australian super funds by the Australian Centre for Corporate Responsibility (ACCR), released in February 2020, found that 50 of the largest super funds in Australia are proxy voting against local climate-change initiatives. These organisations are instead approaching climate change from a global perspective, whilst ignoring more pressing domestic challenges to reduce carbon emissions..

The lack of support from Australian super funds for localised climate action is growing problematic, as Australia fails to address its appalling record on carbon emissions and is falling behind new-age global goals to fight against environmental degradation and climate change.

In contrast, some of Australia’s most environmentally and socially conscious super funds lack the reputation to attract long-term users. To look for more environmentally friendly Australian super funds, the Responsible Investment Association Australasia (RIAA) grades supers based on their ethical contributions and makes this information available to the public.

Instead of mindlessly joining Australian super funds that are neglecting growingly problematic domestic climate change issues, Australians need to become more conscious of our indirect actions and super investments. Rather than investing in an unethical super fund, looking into self-managed super funds may be another good option. We need to learn to take matters into our own hands and become more socially conscious of where exactly our money goes.

Posted on 28 February '20, under super. No Comments.

You can now opt-out of super guarantee as a high income earner

If you’ve unintentionally been going over your superannuation concessional contributions cap in past years, you may not have to worry about it from now on. As of 1 January 2020, eligible individuals with multiple jobs can apply to opt-out of receiving super guarantee (SG) from some of their employers.

You may be eligible to apply if you:

Employees who are eligible can apply for the super guarantee shortfall exemption certificate when they complete the Super guarantee opt-out for high income earners with multiple employers form (NAT 75067).

When you opt-out of SG contributions, you must still receive SGC from at least one employer. If other employers agree to use the SG exemption, then they may provide an alternative remuneration package instead, as to not be disadvantaged. However, the exemption certificate:

Posted on 21 February '20, under super. No Comments.

Taking a super pension

Once you have met your preservation age (between 55 and 60 depending on when you were born), you can choose to take a super pension. There are six main types of super pension:

The standard conditions of release for super pension withdrawals are:

The amount you withdraw can have an impact on any Age Pension entitlements you have, so be aware of these implications when deciding to withdraw an amount. You should also be aware of the transfer balance cap of $1.6 million that you’re allowed to move to an account-based pension. For super pension income streams, you generally need to transfer funds from your accumulation account to your retirement account for your pension.

Posted on 13 February '20, under super. No Comments.

When a trustee goes bankrupt…

SMSF members need to be aware of the rules that govern their fund, including what to do when one member becomes bankrupt.

A requirement of an SMSF is that each individual trustee of the SMSF must be a member of the SMSF. In the case of corporate trustees, every member must be a director. This means all members are connected and held accountable for one another. If one member enters bankruptcy, they will be categorised by the ATO as a “disqualified person”, meaning they can no longer act as trustee of the SMSF.

Where a disqualified person continues to act as an SMSF trustee or director, they will be committing an offence that is subject to criminal and civil penalties. The ATO provides a six-month grace period to allow a restructure of the SMSF so that it either meets the basic conditions required or can be rolled over into an industry fund. During the six-month grace period, the ATO requires:

Posted on 6 February '20, under super. No Comments.

New SMSF alert system

The ATO has introduced a new method of updating SMSF trustees of changes to their fund. From 3 February 2020, email and/or text message alert will be sent out when there are changes in the SMSF, such as;

If you receive an alert and are not aware of changes being made to your SMSF, you should contact the other trustees or directors of the corporate trustee of your SMSF and any other representatives authorised to make changes to your SMSF, such as your tax agent.

The ATO messages will never ask you to reply by text or email or to provide personal information, such as your tax file number (TFN), your personal bank account number or BSB.

The system was expected to start back in November 2019 but was delayed due to technical difficulties. The process has now been confirmed to be working as intended.

Posted on 29 January '20, under super. No Comments.

What happens to your super in a divorce? 

Divorce or separation can be emotionally draining and stressful as it is, but the legal and financial responsibilities you also need to think about add an extra burden to dealing with the spit. One key area that needs to be considered to protect your financial future is your superannuation and what happens to it after your divorce.

The superannuation splitting law treats superannuation as a different type of property. This means that like any other asset it can be divided between partners who were in a marriage or de facto relationships either through:

Splitting the super does not automatically give you a cash asset as it is still subject to superannuation laws.

There are three main options for dealing with your super in a split:

Posted on 22 January '20, under super. No Comments.

Updates to the unclaimed superannuation money protocol

The Superannuation (Unclaimed Money and Lost Members) Act 1999 (SUMLMA), more commonly known as the unclaimed superannuation money protocol, has been updated recently to provide a clearer structure going forward.

SUMLMA provides guidance on in relation to unclaimed money, lost member accounts, superannuation accounts of former temporary residents and their associated reporting and payment obligations. The update has now added content on inactive low balance accounts.

The act now clearly defines what is an inactive low-balance account, how statements and payments work, the registering of lost members and various rules for special cases.

It is important to note that the information in the protocol does not apply to super providers that are trustees of a state or territory public sector super scheme, in which:

The protocol provides administrative guidance only and should not be taken as a replacement for the law or technical reporting specifications.

Posted on 15 January '20, under super. No Comments.

SMSF schemes for illegal access of super

The ATO has issued a warning for Australians to be aware of scheme promoters that promise to allow you to withdraw your superannuation early, and illegally.

Individuals can legally withdraw super when they turn 65, even when they haven’t retired, are at their preservation age and retire, or under the transition to retirement rules while continuing to work. Super can only be accessed early under circumstances that mainly relate to specific medical conditions or severe financial hardship.

The ATO is taking action to shut down promoters who tell people they can gain access to their super before they are eligible to by setting up a self-managed super fund (SMSF), which is illegal. There has been a number of schemes that encourage individuals to channel money inappropriately and deliberately to avoid paying tax.

Penalties for involvement in illegal super schemes include fines up to $420,000 for individuals and up to $1.1 million for corporate trustees. An individual may also lose their right to be a trustee of their superannuation fund or, in some cases, jail time up to five years.

Fund trustees or members who have knowingly been involved in a scheme or been approached by anyone claiming that they can withdraw their super early should contact the ATO immediately to advise of the situation and avoid further penalties.

Posted on 13 January '20, under super. No Comments.

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