The 2016 Federal Government Budget, proposed some of the most significant changes to superannuation that we have seen since 2007. However, as with all budgets and proposals, generally some things go through, some proposals are changes and some are scrapped.

With several traches of draft legislation now released, you might be wondering where are we up to with the proposed superannuation changes and what are the planning opportunities?

1.      The reduction of the concessional contribution cap to $25,000 from 1 July 2017 and ability to have 'catch up contributions'.

From 1 July 2017, the concessional contributions cap (the total amount of superannuation guarantee, salary sacrifice and tax deductible contributions) is proposed to reduce to $25,000 from the current level of $30,000 for those under age 50 and $35,000 for those over age 50.

A higher rate of contributions tax for high income earners was also proposed with the taxable income threshold reducing from $300,000 to $250,000. This is also likely to go through as proposed.

2.      Changes to the non-concessional contribution (NCC) rules and lifetime cap of $500,000.

This proposal has been scrapped by the government with a revised policy drafted and transitional arrangements in place.

It was intended to introduce a lifetime cap on NCC of $500,000 and to include all contributions made from 1 July 2007.

The new proposal provides for an annual NCC cap of $100,000 per financial year from 1 July 2017. The current $180,000  NCC cap will apply for the current 2017 financial year.

The rule that allows individuals aged under 65 to be able to 'bring forward' three years' worth of NCC will continue to apply. However, since the annual NCC cap will reduce to $100,000 per year, the maximum amount of NCC that can be brought forward will be reduced from $540,000 to $300,000 from 1 July 2017.

Ok, sounds simple enough you might say but here is where it gets complicated. 

Where an individual has not fully used their 'bring forward' NCC cap before 1 July 2017, transitional arrangements apply.

• * If the 'bring forward' rule was invoked in the 2016 financial year and the individual does not intend to make further NCCs under the 'bring forward' rule in 2018, then the individual is entitled to make non-concessional contributions of up to $540,000 prior to 1 July 2017.
• * Where the individual has made NCCs amounting to $460,000 or more, then the remainder of their NCCs cap at 1 July 2017 will be reassessed to nil.
• * If the 'bring forward' rule was invoked in the 2017 financial year and the individual does not intend to make further non-concessional contributions under the 'bring forward' rule in 2018 and/or 2019, then the individual is entitled to make non-concessional contributions of up to $540,000 prior to 1 July 2017.
• * Where the individual has made NCCs amounting to $380,000 or more, then the remainder of their NCCs cap at 1 July 2017 will be reassessed to nil.

It's more complicated than it needed to be.

So what are the planning opportunities and considerations?

If you are currently salary sacrificing, then these levels and the associated tax impacts should be reviewed prior to 1 July 2017, to ensure that you will remain within the new caps.

Importantly with this financial year being the last opportunity to access the non-concessional contributions caps under the current rules, if you were considering making contributions into superannuation, utilising a withdrawal or re-contribution strategy to maximise tax-free component monies in superannuation, or balancing out member balances to maximise tax efficiency under the proposed pension transfer cap rules, then you need to act now.

We will be discussing these changes along with other Federal Budget, superannuation and retirement planning changes in our upcoming seminars. 

This information is general in nature and does not take into account your personal goals, objectives or financial situation. Personal advice should be sought prior to making any investment or strategy decisions. Grant Lewis is an employee advisor of Johnsons MME Financial Advisory Pty Ltd ABN 30 141 828 033 and is authorised to provide advice on behalf of Johnsons MME Financial Advisory. 

Grant is a Certified Financial Planner (CFP) with the Financial Planning Association (FPA) and an acredited Self Managed Superannuation Fund Specialist with The SMSF Association. He has completed a Bachelor of Business (Accounting) and Post Graduate Diploma in Finance (Financial Planning) with FINSIA. 

We all want things to be simple, easy and not take up too much time or cost. Companies pray on this and there is no better example than the personal insurances we see advertised on television.

Is it the decision, the process, the cost or the poor perception of the insurers? Australians are under-insured and we would much rather spend time doing other things than making sure our insurances are right. So it's no wonder that when the option to buy insurance on the television for 'the cost of a cup of coffee a day' with just a simple phone call comes up, we consider it. After all, isn't seeking advice expensive and the adviser just want's to collect a commission?

I looked at cover for myself - a thirty-six year old male office worker. Here are the pros and cons.

Insurance off the television

Pro
The only pro was that the process way easy. I applied for a quote online, told them what I wanted, they called me, asked a few questions and provided me a quote. From there it was a five minute phone call with basic underwriting and I would have had cover.

Cons
Con…The cover was restrictive. I could only hold life and TPD outside of superannuation, meaning I would have to fund the premiums from my personal cashflow.

Con…I could only have stepped premiums that would increase with age.

Con…I was limited to a five year benefit period on income protection.

The worst Con…the cup of coffee a day option was expensive. Very expensive. Even if they do give 10% of the premium back after the first year.

Here is the premium comparison:

Type of Cover	TV/Online Provider	Cover via Advisor
Life & TPD of $1million	$2,010.06	$675.54
Income Protection $6,000 pcm	$1,385.28	$715.65
Total	$3,395.34	$1,391.19

 

The results will vary depending on your age and occupation, but that's what it was for me.

Don't get me wrong, if you seek cover off the television it will be better than having no insurance at all, but in my case using an adviser would:

• Save me $2,004.15 on the cost of the insurance in the first year. This premium saving would grow each year. If I hold the cover for ten years that's at least $20,041.50 in extra annual cost.
• The life and TPD could have been held in super where it could be tax deductible and not need to be funded from my cashflow.
• Provide a superior income protection policy at half the cost. The income protection quote from the television was limited to a thirty day wait and would only pay me for five years, in addition it was going to cost twice as much. I was able to have a policy with a thirty day wait which would pay until age sixty-five if I was sick or injured.
• Give me the option to hold some of the cover as a level premium that will not significantly increase over time with age.
• Allow me to structure the ownership, covers and premiums in a way that better suits my cashflow, tax and overall financial position. In addition I am not limited to using one insurer.
• Give the option to pay a fee for the advice I receive on policy ownership, premium structure and the level of insurance I need.

Based on the above it's not a matter as to whether I should seek advice. If I need insurances, I can't afford not to seek advice. The cost of the advice for me to obtain the above personalised insurance structure might be $2,000 to $3,000 upfront. As long the adviser is going to the time and effort to tailor something for me that's fine. It would clearly pay for itself and save me money, and not just in the long term, but in the short term.

Curious to find out more? Call and speak with Grant today on (02) 6023 9100 or email him grant.lewis@jmme.com.au

This information is general in nature and does not take into account your personal goals, objectives or financial situation. Personal advice should be sought prior to making any investment or strategy decisions. Grant Lewis is an employee advisor of Johnsons MME Financial Advisory Pty Ltd ABN 30 141 828 033 and is authorised to provide advice on behalf of Johnsons MME Financial Advisory. 

Grant is a Certified Financial Planner (CFP) with the Financial Planning Association (FPA) and an acredited Self Managed Superannuation Fund Specialist with The SMSF Association. He has completed a Bachelor of Business (Accounting) and Post Graduate Diploma in Finance (Financial Planning) with FINSIA. 

You may be familiar with the types of risks involved with investing. The pattern in which returns are realised by investors, known as sequencing risk, also plays a critical role in determining the ultimate value and long-term sustainability of your retirement savings.

What is sequencing risk?

When you are growing your savings, most market losses can be cancelled out by a long-term investment strategy; it makes sense that things will eventually "average out". But, as you get closer to your retirement, the way markets perform becomes an increasing concern. And, when coupled with the need to start taking out income from your savings, just one negative year on the sharemarket can be a significant adversary for your retirement lifestyle.

The examples below highlight the impact of sequencing, showing how the simple act of reversing the order of the returns results in two drastically different outcomes – when building your wealth and when pension withdrawals are taken into account.

Your investment journey

Portfolio A – Growing your savings with a starting value $500,000 and an average return 7% p.a.*

Year	Annual return (%)	Account value ($)	Annual return reversed %	Account value ($)
1	19	595,000	-12	440,000
2	11	660,450	-15	374,000
3	18	779,331	-11	332,860
4	-7	724,777	16	386,117
5	21	876,981	26	486,508
6	26	1,104,996	21	588,675
7	16	1,281,795	-7	547,467
8	-11	1,140,798	18	646,011
9	-15	969,678	11	717,073
10	-12	853,317	19	853,317

 

Portfolio B – Enjoying your retirement. Starting value $500,000 with an average return 7% p.a. and an annual $20,000 withdrawal (includes adjusted 3% CPI p.a.).*

Year	Annual return (%)	Account value ($)	Annual return reversed %	Account value ($)
1	19	575,000	-12	420,000
2	11	617,650	-15	336,400
3	18	707,609	-11	278,178
4	-7	636,221	16	300,831
5	21	747,318	26	356,538
6	26	918,435	21	408,225
7	16	1,041,504	-7	355,768
8	-11	902,341	18	395,209
9	-15	741,651	11	413,347
10	-12	626,560	19	465,787

*Figures are illustrative only.

As can be seen above, the impact of negative returns in the early years of retirement can be significant. During these years managing investment portfolios with the "sleep test" in mind is imperative.

So what can you do?

While we cannot control the sequence of returns, the good news is that there are ways that may help protect against the effects of this risk, such as:

• Diversifying across asset classes;
• Adjusting your asset allocation;
• Adjusting your contribution rate, and;
• Adopting the "bucket approach" to retirement income funding.

There are few times in life when working with a professional advisor is so important. Give your Johnsons MME Financial Advisor a call today to help you  navigate your retirement planning. 

This information is general in nature and does not take into account your personal goals, objectives or financial situation. Personal advice should be sought prior to making any investment or strategy decisions. Luke Fitridge is an employee advisor of Johnsons MME Financial Advisory Pty Ltd ABN 30 141 828 033 and is authorised to provide advice on behalf of Johnsons MME Financial Advisory. 

Luke is a degree qualified Certified Financial Planner with the Financial Planning Association and have over fifteen years' experience in the financial sector. Luke's qualifications include a Bachelor of Business (Accounting), Post Graduate Diploma in Applied Finance & Investment and a Diploma of Financial Services (Financial Planning).