Superannuation Discussion + market volatility

[cove]

Today we each received our first pension payment from our SMSF. I love the idea that we received some tax free money. I think all we need to do is make sure we keep under the Treasurer's announced figures for each of us.

 

[CaptJCool]

Sounds like communism to me. The less government meddles with superannuation, the better.

Poorly performing funds would not survive if not for the apathy or ignorance of their members.

I think you and I have a different definition of taking responsibility.

Not everyone has the choice option, as much as it may be desired, some employment arrangements are proverbially ancient and locked in. Or recent and locked in an EBA. AND the age pension looks extremely enticing for many Aussies especially since a post tax result of 3.4% needs $1,000,000 saved as a capital value - something most Autralians can only dream about. Earning historically an average salary over a lifetime means grossing barely $2,000,000 which means there's no chance of saving $1 million.

my definition of responsibility is if you're able-bodied, you gotta get a higher salary during your career. which clearly is not as easy as it might look....

 

[lovetravellingoz]

Wow.

Reading a lot of good and bad information here.

I am no guru at super but after some research have a great financial planner who is worth a bit more than his weight in Gold.

He hates Industry funds with a passion and has shown why several times by running comparisons. Their fees are lower but as was alluded by someone early in this thread their returns can often low also. I am a mid range investor for risk and we still continually very well thanks.

.

Out of interest which way did you go (I am guessing perhaps wrongly that it was a retail fund, and not a SMSF)? Was it retails funds and then choosing some of the more specialised Investment Funds that many of the Industry Super schemes do not offer?

The Industry Funds often come out on top of super fund comparisons, but they typically only compare basic "balanced" options, and not the more tailored Investment Funds that on can select. As most of these will say track the ASX200 (or similar), with some property and cash thrown in it is hardly a surprise that the lower fee funds then come out on top in comparisons.

 

[get me outta here]

So, if a person has say over $1.6m in an industry fund, under the new rules, does that mean they need to pay tax on the excess?

 

[burmans]

So, if a person has say over $1.6m in an industry fund, under the new rules, does that mean they need to pay tax on the excess?

15% on earnings, still hardly that punitive.

 

[Flying mermaid]

So, if a person has say over $1.6m in an industry fund, under the new rules, does that mean they need to pay tax on the excess?

it only really applies after retiring. Up until then everything is in accumulation phase and you are paying 15% on earnings anyway. Once retiring if you have over 1.6, (or retired at the point this becomes operative), then you can only keep 1.6m of assets in the pension part. Excess moves (or stays) in accumulation phase and you pay 15% tax. You also have the choice of taking all or part of the excess as a lump sum - if you don't have other investments, you can then take advantage of the tax free threshold for personal tax. All in all it is not such a bad thing.

 

[get me outta here]

I can see people going back to what used to happen often, taking lump sums and frittering it away. Or, helping out their adult kids to buy into a re-energised property market, as if it needs a further boost.

It's not quite all agreed as yet though is it?

15% on earnings, still hardly that punitive.

it only really applies after retiring. Up until then everything is in accumulation phase and you are paying 15% on earnings anyway. Once retiring if you have over 1.6, (or retired at the point this becomes operative), then you can only keep 1.6m of assets in the pension part. Excess moves (or stays) in accumulation phase and you pay 15% tax. You also have the choice of taking all or part of the excess as a lump sum - if you don't have other investments, you can then take advantage of the tax free threshold for personal tax. All in all it is not such a bad thing.

 

[dajop]

I can see people going back to what used to happen often, taking lump sums and frittering it away. Or, helping out their adult kids to buy into a re-energised property market, as if it needs a further boost.

It's not quite all agreed as yet though is it?

The other option is of course to take it all out, put it into place to live in and draw a pension from the government as you the have no assets other than the family home .... not that I think that's a good strategy ... although once people get to certain age many get a feeling they've paid all their taxes and entitled to something back ...

 

[get me outta here]

That's an option, and I'm sure the financial planning wizards on to various options. The gubment says that ~ 1% of people have > 1.6mil. I would imagine most of those are already home owners.

The other option is of course to take it all out, put it into place to live in and draw a pension from the government as you the have no assets other than the family home .... not that I think that's a good strategy ... although once people get to certain age many get a feeling they've paid all their taxes and entitled to something back ...

 

[Flying mermaid]

I can see people going back to what used to happen often, taking lump sums and frittering it away. Or, helping out their adult kids to buy into a re-energised property market, as if it needs a further boost.

It's not quite all agreed as yet though is it?

I think 1.6 (and more if there are two of you), is more than enough to provide an adequate pension, so I don't think there is a problem in taking out the excess and spending it. But then I am a spendthrift at heart.

Its not legislated yet, but Morrison seems to have done a deal with Labor - has to get through the Senate as well of course.

 

[coyote25]

Re: The totally off-topic thread

Meanwhile our top public servants to avoid most super changes.



Elite public servants to escape Morrison's super axe

Yeah the article is not quite right, mixes a couple of things and misses a couple of important matters. The 15.4% contribution mentioned is only for public servants in a accumulation fund (sometimes called defined contribution) that most Australians are in. The defined contribution schemes that were shut back in 2007 have employer contributions that are variable by however much the employee puts info their own money (0-10% - the higher % the more employer amount especially if working for Government for over 10 years) AND the performance of the super fund (if the fund loses money the employer has to top up as the benefit is defined).

In a low inflation and low return environment Defined Benefit funds are very good for employees which is one of the reasons employers (not just Governments) shut them down and put the risk on the employee/member.

The fat cat public servants with the big account balances (over $1 million about 1.5%-2% of employees) will find that their account balance is grossed up to hit the $1.6 million cap despite not having that much in actual money involved, this reflects how the amount doesn't reduce by draw downs in the pension phase as the calculated annual pension lasts for the life of the former employee Index by CPI. The longer the ex employee lives the bigger the effective benefit for the member, if they die not long after retiring without a spouse then it's great for the employer as they don't have to payout the employer benefit.

Additionally there will be significant barriers for PS DB Fund members accessing the personal super contribution deductions which will be expanding for the vast majority of Australians. Their (up to) 10% of personal contributions going into DB Fund won't be able to be claimed as a tax deduction, but they can put more into a super fund outside the DB structure (if they have anything left). Remember everyone else putting personal contributions will be able to claim a personal tax deduction under proposed laws. Also they don't get tax free in retirement (there is a rebate) which reflects 15% super fund tax can't be applied during each year as one the Government doesn't put money in (it's notional accounting figures) and the figures can be adjusted 20-30 years in the future, so instead PS DB Fund members are taxed when money is taken out (while everyone else gets taxed during accumulation but tax free on withdrawals from age 60).

So yes the article picks up some measures that don't apply to people who joined the Federal Public Service before 2007 but there are a number of clawbacks (gross up $1.6 m cap) and restrictions (no access to expanded tax deductions) to attempt to make too very different schemes (accumulation and defined benefit) fairly close in tax terms (although impossible to be equal as life expectancy of members in DB changes employer contributions well after member retired - that's the reason employer contributions can't really be calculated as they are only notional and in most cases would be grossly understated).

Still I'd rather be in a defined benefit scheme as the investment risk is on the employer not the employee so yo can plan with more certainty then people in accumulation and if you take the pension option their is no 'longevity' risk (not having enough money if you live for a long time in retirement) as once again it's on the employer. So while it can be worst to be in the DB the balance of probability means for a fit healthy person this is a better option. I mean there is a reason every employer closed DB schemes!

So it's complicated and both situations are very different, ones an apple and the other an orange (maybe a lemon!).

Hope this helps explain that the rich fat cats aren't getting it all their way even if they are in a scheme that I believe majority would want (certainty).

 

[exceladdict]

To the financial minds of AFF: the time has come where Mrs Excel & I need to think seriously about superannuation. Until now it's been retail funds and/or funds with defensive low/no cost options.

With decades to go before I'll be able to touch it, we've been advised to look towards moderate-high risk options. I'm a relatively hands-on type of person who has a spreadsheet for everything, so I don't mind a bit of work, but equally don't want to go in blind.

My questions are:

1. Taking in to account all factors you think are important (and feel free to discuss what they are), what investment strategy would you choose? I.e. 30% cash, 20% local shares, 20% int'l shares hedged against the AUD, 20% Aus fixed interest assets, 10% Aus listed property, etc.

2. Are there any retail or industry funds you recommend and why?

3. At what point is a SMSF worth considering?

Any advice greatly appreciated.

 

[Jeffrey O'Neill]

i started running my own SMSF about 5 years ago using esuperfund. find them very good to deal with and quite cheap.

esuperfund will cost you $799 for the annual audit, then there's a $259 ATO annual fee as well.

Apart from those fees you can keep most other fees quite low. I've got about $250K in my SMSF and have mostly bonds + ETFs and a MER of about 0.69%.

The beauty of an SMSF is you have a relatively fixed cost base. Most super funds just charge you more and more as your balance increases.

I suggest going the extra expense of setting up a corporate trustee as it makes management much easier over the long run.

I'm following an investment rule of roughly your age = % allocated to bonds. as you get older you have less time to recover from market down turns.

i recommend fiig.com.au if you'd like to have direct ownership of various corporate bonds. you can get some some inflation linked bonds in your account that provide around 4% + CPI.

 

[Pushka]

We've been running our own superfund for over 20 years and never looked back. It's great to make your own decisions as long as you do the research. Our best investment was a block of land that returned over 100% gain in 18 months. Shares were great until the GFC and later dips but are picking up well now.

 

[amaroo]

3. At what point is a SMSF worth considering?

$250K ... or you work in the trade (keep cost down) .... or you want to do some property investment.

 

[knasty]

Do people with an SMSF still keep some nominal money in retail/industry fund to access insurance? From my research death/TPD through the larger industry funds is waay cheaper than other direct options.

 

[Pushka]

Do people with an SMSF still keep some nominal money in retail/industry fund to access insurance? From my research death/TPD through the larger industry funds is waay cheaper than other direct options.

Yes. We did. Has about $1000 more than the insurance deductions. And is paid by the ATO superguarantee process that is now compulsory.

 

[cove]

Esuper really suited us. However not everyone has been in the investing market for about 50 years.
If you have no investment experience I would say don't go SMSF until you do.
I changed over when I stopped working 60 plus hours a week so I had the time to make a good plan and that has really been sweet for us. That was about 5 years ago. Our fund grew by more than 4 times in this 5 year period as we invested in non speculative shares and securities.
I am careful who I talk to about SMSF as many would not be good at it.

 

[Mogul]

With the long term uncertainty in regards to what changes will happen to superannuation, we have invested outside of super so we can retire when we want to and not when the Government of the day says we can.

 

[Jeffrey O'Neill]

With the long term uncertainty in regards to what changes will happen to superannuation, we have invested outside of super so we can retire when we want to and not when the Government of the day says we can.

i'm the same way. only compulsory contributions with deferred consumption funding investments outside super.