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Self-Managed Super Funds: The Importance Of Getting The Right Advice

The Australian Securities and Investment Commission (ASIC) has released a report detailing its findings from a large research project undertaken into self-managed super funds (SMSFs). The research looks into member experiences in setting up and running an SMSF and whether advice providers are complying with the law when providing personal advice to retail clients to set up an SMSF.

Since the introduction of SMSFs in 1999, many consumers, motivated by a desire to gain control over their investments and financial futures, have opted for SMSFs over retail superannuation products. Today, there are more than 590,000 SMSFs holding assets worth nearly $697 billion. This figure represents 30 per cent of all funds held in superannuation. Amazingly statistics from the ATO show that people under 40 are the fastest growing segment of the sector. People who earn less than $60,000 a year now account for 55 per cent of SMSF members, and 20 percent of members are under 45 years old.

Considering the immense and growing popularity of SMSFs, ASIC saw the need for consumers to be fully aware of the risks and obligations involved with moving their superannuation into a self-managed super fund, and wanted to highlight the important role that access to quality financial advice plays in guiding consumers to make the right decision.

Consumers can be caught out by the complexities of SMSFs

The report highlighted a number of areas where consumer expectations around SMSFs are misaligned with the reality of running one. The research found that 32 per cent of members found setting up and running their SMSF to be more costly than expected, and 38 per cent found running their fund to be more time consuming than expected[1].

Additional findings that highlight the lack of understanding consumers have around their SMSFs and their corresponding legal obligations as SMSF trustees include[2]:

  • 33% of members did not know that an SMSF must have an investment strategy;
  • 30% of members had no arrangements in place for their SMSF if something happened to them;
  • 29% of members thought they were entitled to compensation in the event of theft and fraud involving the SMSF; and
  • 19% of members did not consider their insurance needs when setting up an SMSF.

Adviser advice inadequate when it comes to SMSFs

The research report also reviewed 250 client files where an adviser had provided personal client advice to set up an SMSF. Unfortunately, the results indicated that there were a number of instances where the advice provided was non-compliant, ranging from poor record-keeping and process issues to situations where clients were at risk of significant financial detriment.

It’s a big wake up call for both clients and advisers. Clearly, lots of people are setting up self-managed super funds without knowing whether this is the best option. Also the report highlighted that some advisers aren’t doing a good enough job in this space to support their clients.

What should I do if I am interested in setting up an SMSF?

If you’re interested in setting up an SMSF, you should not be put off by the findings of this report, however, we urge you to seek reputable advice to ensure that an SMSF is the right approach for your finances.

When selecting a financial planner, you need to ask about their credentials and get an overview of their education to ensure they have the right knowledge around SMSFs. Additionally, they should be open-minded in regards to options outside of SMSFs. Actively ask your planner to outline the benefits and risks of SMSFs vs other super investment options to ensure they are the best option for you and your goals for the future.

How do I find the right financial planner for advice on SMSFs?

Firstly, don’t be afraid to shop around. Ideally, a relationship with a financial planning professional will be long-term, ensuring you are working towards and achieving goals that benefit you over the course of your life. It is crucial that you feel comfortable with the planner you select, so it can be a good idea to have initial meetings with a few planners to ensure that you are aligned in terms of how you want to approach financial planning, and that you feel like they understand your needs and can provide appropriate advice.

Secondly, ensure they are licensed. You should always look for a financial planner who works for a firm that holds an Australian Financial Services (AFS) License issued by the Australian Securities and Investments Commission (ASIC). If you have any doubts, you can use the ASIC Financial Adviser tool on the MoneySmart website to verify whether the financial planner is licensed.

Finally, ask about their education, qualifications and associations. Make sure your financial planner is properly trained to provide advice, and don’t be afraid to ask about what financial planning qualifications they have achieved. You should also look for a planner who is a member of a professional body, such as the Financial Planning Association (FPA). Members of the FPA must meet stricter criteria and higher standards than currently required by law.

In order to provide advice that will specifically benefit you, your financial planner should spend time asking questions and gathering information to gain an understanding of your current circumstances, your financial habits and your goals in order to develop a personalised financial plan that encompasses all areas of your finances, including the right approach to superannuation. If you encounter a planner who seems overly invested in selling you a particular product, particularly without spending time getting to know you, you should treat that as a red flag that they are not the right adviser for you.

I already have an SMSF, what now?

If you already have an SMSF, remember that you are not locked in to this investment structure. If you do some further research, or seek additional advice, and decide an SMSF is not right for you, there are options for winding up your SMSF and moving your super to a more traditional product, and the ATO provides some general direction on winding up your SMSF.

 

Feel free to contact us should you have more questions, we’re willing to set up a meeting with you.

 

 

Article Source Here.
[1]Pg 8, ASIC, “SMSFs: Improving the quality of advice and member experiences”, June 2018,https://download.asic.gov.au/media/4779820/rep-575-published-28-june-2018.pdf
[2]Pg 8, ASIC, “SMSFs: Improving the quality of advice and member experiences”, June 2018,https://download.asic.gov.au/media/4779820/rep-575-published-28-june-2018.pdf

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Top 10 Legislative Updates For Financial Year 2018-2019

As we kick off the new financial year, we thought we would provide you with a list of the top 10 legislative updates that are due to take effect in the 2018-19 financial year – either on or after 1 July 2018.

Please note: Some of the below listed legislative updates were proposed measures in the 2017-18 and 2018-19 Federal Budget, some which have now been legislated, whilst others are yet to pass through the legislative process. As such, where applicable, we have noted legislative updates that are still pending.

Importantly, changes could be made or the proposals may be rejected.

Superannuation

1. Contribution Caps and General Transfer Balance Cap.

Please note: From 1 July 2018, the new carry forward provision will apply for concessional contribution caps; however, the first year that you will be entitled to carry forward unused amounts is the 2019-20 financial year.

  • The general transfer balance cap will remain unchanged at $1.6 million.

2. Downsizing Measure. From 1 July 2018, the Downsizing Measure will allow those aged 65 or over to use the proceeds from the sale of their home, to make a downsizer contribution of up to $300,000 each into superannuation (subject to complying with some finer details).

3. First Home Super Saver Scheme. From 1 July 2018, the First Home Super Saver Scheme (FHSSS) will allow eligible prospective first homebuyers to withdraw their voluntary superannuation contributions, and an amount of associated earnings, to assist with the purchase or construction of their first home.

4. Superannuation Guarantee and Employees with Multiple Employers. From 1 July 2018, individuals who have multiple employers and earn more than $263,157 will be able to nominate their wages from certain employers are not subject to the Superannuation Guarantee. This will help them avoid breaching the concessional contributions cap of $25,000. This proposal has not yet been legislated.

5. Government Co-contribution. From 1 July 2018, the income thresholds for the 2018-19 financial year will be increased due to indexation. Moving forward, the maximum co-contribution of $500 will be reduced by 3.333 cents for each $1 of income earned over $37,697 (previously $36,813), and cuts out when your total adjusted taxable income reaches $52,697 (previously $51,813).

Taxation

6. Personal Income Tax Plan. From 1 July 2018, the top threshold of the 32.5% tax bracket will be increased to $90,000 (previously $87,000). Below is a brief overview of the Personal Income Tax Plan income levels and tax rates for the 2018-19 financial year, as well as the other legislated changes due to take effect in the 2022-23 and 2024-25 financial years. This proposal has recently been legislated.

7. Personal Income Tax Plan – Continued. From 1 July 2018, a new non-refundable Low and Middle Income Tax Offset will be introduced, which is aimed at providing a benefit of up to $200 for taxpayers with a taxable income under $37,000; up to $530 for taxable incomes between $37,001 and $90,000, before phasing out at $125,333. This proposal has recently been legislated.

8. HECS/HELP Loan Repayment Rates and Thresholds. A bill has entered the Senate that if legislated in its current form (third reading*) would see the repayment rates and thresholds for HECS/HELP loans amended. Below is a brief overview of both the legislated and the proposed repayment rates and thresholds. This proposal has not yet been legislated.

Social Services

9. Child Care Subsidy. From 2 July 2018, the Child Care Benefit and Child Care Rebate will be replaced with a new financial assistance payment, the Child Care Subsidy. Moving forward, the level of Child Care Subsidy that you may be entitled to will be assessed against several interconnected factors: combined family income; activity test (the activity level of parents); and, hourly rate cap applied in relation to the child care service type and age of your child.

Please note: This is not an automatic transition process. You will be required to complete a ‘Child Care Subsidy Assessment’ task with Centrelink. If you do not complete the required assessment, the Child Care Subsidy will not be paid to your approved child care provider.

10. Age Pension Residency Test. From 1 July 2018, new applicants will be faced with enhanced residency requirements (however, existing exemptions would still be preserved). This proposal has not yet been legislated. The enhanced residency requirements to be deemed eligible to receive the Age Pension are as follows:

  • 15 years of continuous Australian residence, or
  • 10 years of continuous Australian residence, with at least five years of this during their Australian working life (i.e. between age 16 and Age Pension age), or
  • 10 years of continuous Australian residence, and not have been an activity tested income support payment recipient for a five-year cumulative period.

Moving forward

If you would like to discuss any of these legislative updates and their relevance to your financial situation, goals, and objectives, please do not hesitate to contact us.

 

 

 

Article source here.

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Sharp rise in living costs for pensioners.

Workers may be getting a little excited about the prospect of a tax cut in next week’s federal budget to help with their cost of living pressures, but new figures suggest it is retirees who may need a greater helping hand.

Consumer confidence, according to one survey, has risen for three straight weeks heading into next Tuesday’s budget where personal income tax cuts are expected to be its centrepiece.

However, despite this better mood, respondents may have been a little surprised by the benign result of the latest quarterly inflation figures released last month, particularly if they are struggling to make ends meet in a low wage growth environment.

The consumer price index, which measures a basket of goods and services, rose just 0.4 per cent in the March quarter for an annual rate of 1.9 per cent, below the Reserve Bank two to three per cent target band.

However, the Australian Bureau of Statistics also produces its cost of living indexes every three months, which measure the impact of inflation on various households.

They gauge how much after-tax incomes need to change to allow different types of households to purchase the same quantity of consumer goods in a given period.

For employee households, the cost of living is calculated to have grown at a slightly higher rate than the CPI would suggest, increasing at 0.5 per cent for an annual rate of two per cent.

The bureau blames this on a 2.8 per cent increase in education fees at the start of the new school year and a 1.1 per cent rise in transport costs through rising petrol prices.

This assumes employee households are raising children and need to travel to and from work while enjoying falls in international holiday travel if they took advantage of winter off-peak sales.

However, age pensioner households are deemed to have a greater reliance on health products and services, which rose 5.5 per cent in the March quarter.

The bureau also calculated such households would have endured a 0.7 per cent increase in housing costs, including electricity.

Overall, pensioners would have seen a cost of living increase of 0.8 per cent over the quarter, double the quarterly rate of CPI.

 

Article source here.

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Who gets your Superannuation if you die?

If you pass away suddenly, your superannuation may not necessarily go to the people you want. Many people do not realise that under Australian law, the trustee of your super fund could actually have control over who gets your money when you die. So how do you make sure your super goes to the right people?

The law on super fund death benefits

Unlike the rest of your assets, your super fund is not covered in your will. This is because you don’t actually own your super fund – it is being held for you by a trustee. Legally, the trustee has responsibility for how your death benefit is awarded.

Most super funds allow you to nominate the person or people you want your death benefit to go to, and depending on the type of nominations you make, your super fund trustee may legally have to abide by your wishes.

However, if you fail to nominate anyone, the decision will be made by your trustee. While your trustee will usually award your death benefit to one or more of your dependants or to your estate, there are no guarantees of this. Even if they do, it is likely to take a lot longer for the beneficiaries to receive their money. It can also be the cause of fighting within your family, as some of your dependants may not receive what they think they deserve.

This is why it’s highly advisable to nominate the people you want your super money to go to in the event of your death.


Who can be a beneficiary of your super fund?

Legally, only your dependants can be named as beneficiaries of your super fund. Super death benefits recognise dependants as:

  • A spouse
  • Children of any age, including adopted children
  • Anyone else who depends on you financially, or who you have a mutual financially dependant relationship with, such as a relative who lives with you.

You can’t nominate anyone who isn’t classed as a dependant to benefit from your super fund. The only way non-dependants can benefit is if you name them in your will and nominate your estate as the beneficiary of your super fund.

Nominating your estate means that your super fund becomes an asset when you die, and can be divided up according to your instructions in your will, by your personal legal representative.


How to nominate beneficiaries

The first step is to check that your super fund allows you to nominate beneficiaries. If so, there are two types of nomination you can make:

  • A Binding Nomination. Under a binding nomination, your trustee legally has no say in where your super death benefit goes – they have to pay it to either the dependants you have nominated, or your estate. Binding nominations only last for three years, and your super fund should let you know when a binding nomination is about to expire. If you die without renewing it, your death benefit will automatically be paid to your estate and divided up according to your will.
  • A Non-Binding Nomination. A non-binding nomination only acts as a guide to where your money should go – your trustee still has the final say, and is not legally obliged to abide by your wishes, although most will take them into account.


Can you change your super fund beneficiaries?

You should review your nominations every time your personal circumstances change, to make sure your money will actually go to the people you want. If you get married or have children, you’re likely to want to include your spouse and children as beneficiaries. Equally, if you get divorced, it’s advisable to remove your ex-spouse as a beneficiary – otherwise, if you die, they could benefit and your new family or other chosen dependants could lose out.


Do different super funds have different policies?

While most super funds will allow you to nominate your chosen beneficiaries, they can have different policies on this. Ultimately the decision about how your death benefit is paid, and who it is paid to, depends on the governing rules of your individual super fund. You should contact your fund to find out what their policies are.

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Top 5 best personal budgeting tips, no matter what your income.

A new financial year is upon us. The best way to own it is to plan now! Here are five of the best tips for making a personal or family budget, and sticking to it. Smart budgeting allows you to have enough for the things you enjoy, no matter what your age or income.

1. Work out your income and expenditure

The best place to start when you’re creating a budget for yourself or your family is to work out what comes in against what goes out each month. Write a list of your sources of income – your salary, any additional income from investments such as rental property, and interest on your bank accounts. Your income has to be factual rather than speculative, though – even if you’re due a pay rise or inheritance, don’t include them if they haven’t already happened.

Then work out your monthly expenses. Regular outgoings will include your mortgage or rent, insurance and household bills. Estimate your other expenditures, such as grocery and clothes shopping, as best you can.

Once you’ve done this, you’ll be able to have a realistic idea of where you need to make savings. You should aim to:

Earn more than you spend
Be able to afford occasional indulgences such as holidays, tickets to concerts or sports events, and dinner with friends
Put some money away each month as savings and to cover the cost of emergencies.
2. Make some necessary changes

This is often the most difficult part. You need to take a look at your expenditure and work out how much of it that you actually need to spend. If you haven’t been to the gym for months, you should cancel your membership. If you spend a lot on clothes, could you save yourself money by shopping at factory outlets or online? Even the cost of buying your lunch each day could shock you into making sandwiches to take to work. Small savings add up into much larger amounts over time.

You can also make savings by spreading the cost of big events like Christmas over the whole year, keeping an eye out for presents whenever the sales are on. This will save you spending out drastically in December and running up a huge credit card bill in January to make up the shortfall.

Don’t aim to deny yourself all the things you enjoy; just be sensible about what you spend to avoid unnecessary waste.

 

3. Make sure you’re getting the best deals

If you want to stick to your budget, it’s important to continually shop around, instead of sticking with your current arrangements out of convenience or habit. Some of these changes are really easy to make – you can save a lot of money on your grocery bills, for example, by shopping at budget supermarkets like Aldi.

Visit price comparison sites to make sure you’re getting the best deals on your energy, insurance and other services such as mobile phone and broadband. Families can often save money by choosing a bundled package for their phone and internet services, as these often work out cheaper than individual contracts. You should also consider switching your bank account and credit card if you could get better interest rates elsewhere.

Remember, if you do find a better deal on any of the services you use, you’re perfectly within your rights to ask your current provider if they’re prepared to match or better it. Many of them will in order to keep your business.

 

4. Adopt a more energy efficient lifestyle

You can live a greener, more sustainable lifestyle by making a few simple changes. It won’t just save you money; you’ll also know you’re doing your bit to protect the planet!

If you’re buying any new appliances, make sure you go for the most energy-efficient models. This could save you hundreds of dollars each year in household bills. Also, make sure you switch off all your appliances when they’re not in use, rather than just leaving them on standby, to reduce unnecessary energy use.

Make the most of the rebates offered for energy efficiency schemes. These vary between states, so check what’s available where you live. Many states now offer rebates on initiatives such as water-saving appliances and rainwater tanks.

 

5. Consider using a budgeting app

There are now many apps available which enable you to budget easily using your smartphone. These can be helpful because they can show you where you stand with all your sources of income rather than just your bank account. You can also set spending limits. The app will track what you spend and alert you when you approach your limit. Budgeting apps can also be useful for setting yourself financial goals and monitoring your progress.

There are a wide variety of budgeting apps on the market now for all the most popular operating systems – it’s worth doing some research to find the one that’s right for you.

Remember, budgeting isn’t about denying ourselves the things that make our lives enjoyable. It’s simply about giving ourselves a fair deal. No matter what we earn or where we live, none of us should be paying over the odds for goods and services we can get for less somewhere else. And with a little planning, you can achieve the lifestyle you want, and have a little put aside for a rainy day.

 

Consulting your financial adviser and accountant is always a good idea too.

(Feedsy Exclusive)July 26, 2017
(Article source here)

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