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Findings From The Productivity Commission’s Super Report

The Productivity Commission handed down its final report on Australia’s $2.7 trillion superannuation industry in January 2019, finding that unneeded and underperforming super accounts are costing members $3.8 billion each year. We’ve rounded up some of the key findings and recommendations from the lengthy 722-page report into a short and simple overview.

What were the Productivity Commission’s key findings?

Unneeded super accounts are costing members billions

The report found that a third of super accounts, about 10 million, are unneeded as members already have a primary super fund. According to the report, these ‘unintended multiple accounts’ are costing members almost $1.9 billion a year in excess insurance premiums and $690 million in excess administration fees. Over time, these accounts can leave the typical worker with 6% (or $51,000) less at retirement. The effects were described as ‘regressive’, with younger and lower-income members most affected.

Many retail funds not performing well

According to the report, despite retail funds making up just nine of a group of 29 funds identified as underperforming, over three quarters (77%) of super accounts within these 29 funds are in retail funds. In addition, the report states that retail funds have been ‘systematically outperformed’ by not-for-profit funds.

Members are paying excessive and unwarranted fees

“Evidence abounds of excessive and unwarranted fees in the super system,” the report said. Australians pay over $30 billion a year in super fees, and this is excluding insurance premiums. The report says that high-fee products are ingrained in the system, mostly in retail funds. Interestingly, the report also found that funds that charge higher fees tend to deliver lower net returns after investment and administration fees are taken into account.

Australian super fees are higher than other countries

The report found that Australians are paying higher super fees compared to those in many other OECD countries. While the report did not discuss specific countries, OECD countries are developed nations like the United States, Canada and the United Kingdom. However, the report does note that part of this could be due to the higher expenses that Australian funds face.

Not all members are getting value out of insurance in super

Approximately 12 million Australians have insurance through their super. According to the report, this can provide workers with more affordable insurance than they would be able to get from a stand-alone policy. However, the report also notes that not all members are getting good value from this. For instance, it states that some members end up with their balance eroded by over $50,000 by duplicate or unsuitable policies.

Default super funds can create an ‘unlucky lottery’

Up to two-thirds of members are put into a default MySuper account when starting a new job. The report noted that while default super funds are necessary in our compulsory super system, this can create an ‘unlucky lottery’. According to the report, at least 1.6 million of these member accounts are currently held in underperforming products. This can have a big impact on retirement – according to the report, if a worker is placed in a bottom-quartile MySuper fund they will retire with $502,000 less than if they had been placed in a top-quartile one.

What were the Productivity Commission’s super recommendations?

Based on its findings, the report proposed a raft of changes to Australia’s superannuation system. Notably, it recommended that long-term underperforming super funds be ‘weeded out’ and that new employees should be presented with 10 ‘best in show’ super funds to choose from. If all 31 recommendations were implemented, the report said a 55-year-old today could gain $79,000 by retirement and a new worker could retire with an extra $533,000.

Here’s a quick overview of the report’s 31 recommendations:

  1. Default super accounts should only be created for people who are new to the workforce or who don’t have an existing super account.

  2. New workers or workers without a super account should be presented with a shortlist of 10 ‘best in show’ super funds to choose from. If no choice is made within 60 days, they should be defaulted to one of the shortlisted funds.

  3. The ‘best in show’ shortlist should be selected by an independent expert panel.

  4. All super funds regulated by the Australian Prudential Regulation Authority (APRA) should undertake annual outcomes tests for their MySuper and choice offerings. If a fund falls noticeably short over eight years on average, it should have a 12 month remediation period or if this is not possible, the fund should be withdrawn from the market with members transferred to better-performing funds.

  5. All super accounts with balances under $6,000 and 13 months or more of inactivity should be automatically consolidated into the member’s active account.

  6. The government should require funds to publish simple, single-page product dashboards for all super products.

  7. The Australian Taxation Office (ATO) should be required to link to the relevant product dashboard on a member’s existing account.

  8. The Corporations Act should be amended to ensure the term ‘advice’ can only be used in association with ‘personal advice’ – that is, advice that takes into consideration personal circumstances.

  9. The government should evaluate its financial literacy programs, with a view to targeting funding towards effective programs, and defunding ineffective ones.

  10. The government should reassess the need for a Retirement Income Covenant, a code that requires super funds to consider the needs and preferences of their members.

  11. When members reach 55 years of age, the government should prompt them to visit specific pages on the Australian Securities and Investments Commission (ASIC) website and the Department of Human Services website in order to obtain information that could help them in the pre-retirement stage of their lives.

  12. The government should create stronger safeguards for consumers in self-managed super funds (SMSFs), for example requiring specialist training for persons providing SMSF set up advice.

  13. The government should roll out the Consumer Data Right to super. The Consumer Data Right, which is part of the open banking initiative allows banks to share member data with accredited service providers with member consent.

  14. All fees charged by APRA-regulated super funds should be levied on a cost-recovery basis meaning fees reflect the actual cost of providing service. Trailing financial adviser commissions, that is annual fees paid to an advisor over the life of an investment product, should be banned.

  15. Insurance through super should be opt-in for members under 25. Trustees should stop all insurance cover on accounts where no contributions have been made for 13 months.

  16. APRA-regulated super funds should be required to articulate and quantify the balance erosion trade-off determination they have made for members in relation to group insurance.

  17. A regulator task force should be established to monitor the Insurance in Superannuation Voluntary Code of Practice and maximise the benefits it can offer consumers.

  18. The government should fund an independent public inquiry into insurance in super.

  19. APRA should amend its standards for regulating board directors of superannuation trustees.

  20. Trustee boards of APRA-regulated super funds should be required to disclose to APRA any merger activity.

  21. The government should make capital gains tax relief for mergers permanent.

  22. The government should be clearer on what it means for a trustee to act in its members’ best interests.

  23. APRA should focus more on matters relating to licensing and authorisation.

  24. ASIC should focus more on the conduct of super trustees and financial advisers, and the appropriateness of products and disclosure.

  25. The government should clarify the roles of APRA and ASIC in relation to super.

  26. The government should immediately initiate an independent capability review of APRA, and publish the outcome before the end of 2019.

  27. The government should establish a permanent super data working group, comprised of APRA, ASIC, the ATO, the Australian Bureau of Statistics (ABS), the Commonwealth Treasury and the new member advocacy body suggested under Recommendation 28.

  28. The government should fund an independent super members’ advocacy and assistance body.

  29. The government should require ongoing reviews of the super system, by requiring APRA and ASIC to jointly produce a report every two years, commissioning an independent review every five years, and commissioning an independent public inquiry every 10 years.

  30. The government should commission an independent public inquiry into the role of compulsory super in the broader retirement incomes system. This inquiry should be completed before any increase in the Super Guarantee rate.

  31. The government should implement these recommendations by establishing a Steering Group of departmental and agency heads to oversee.

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How To Transfer A UK Pension To Your Australian Super Fund

Transferring UK pension money to your Australian super fund can be tricky, especially in the wake of several legislation changes in both countries. Here’s our guide on how to do it.

 

If you lived and worked in the UK for any period of time, you will likely have accrued savings in a UK pension. And if you’ve moved to Australia – either for the first time or as a returning resident – you may (understandably) not want to see that money go to waste. You may be able to have that money transferred to your super fund, but it’s not the most straightforward process.

 

Am I eligible to transfer my UK pension to my super?

According to the Australian Taxation Office (ATO), you’ll generally need to take into account both the Australian and UK rules for any transfer. The ATO suggests there are three key criteria for moving your UK pension funds into your superannuation account while minimising fees and tax:

  • You must be under 75 years at the time

  • You must meet the Australian ‘work test’ if you are aged between 65 and 74. The ATO has more details about the ‘work test’ available on its website.

  • The maximum UK pension balance you can transfer using the Australian superannuation non-concessional contributions bring-forward rule is $300,000, based on figures for the 2018-19 financial year.

It’s important to note that, according to the ATO, if you’re 65 years of age or older, you’re not able to make use of the bring-forward rule even if you do meet the work test. This means you can choose to either only transfer the yearly non-concessional limit of $100,000, or attract a 47% tax rate on the portion of the transferred amount which exceeds $100,000.

You may also want to consider that, as outlined on the UK Government website, ‘accessing benefits (directly or indirectly) before the age of 55 will result in a liability to UK tax charges in all but the most exceptional circumstances’.

If you choose to leave your pension in the UK, in the time remaining until you turn 55 it may be prudent to actively manage your UK pension, including making sure you’re not paying too much in fees.

Can my super fund receive a UK pension transfer?

Changes to the UK pension laws made in 2015 rendered a significant number of Australian super funds unable to receive UK pension amounts. This was because UK pension laws now require that a super fund unconditionally guarantee an absolute minimum access age of 55, with limited exceptions, such as in certain cases of ill health. Australian funds which didn’t provide this guarantee were barred from accepting UK pension transfers.

 

As detailed by the ATO, many Australian funds, including some of the biggest retail and industry funds, also allow members to have early access on other grounds, such as financial hardship, in line with local superannuation laws. As a result, many of these funds are no longer eligible to receive UK pension transfers.

 

In order to be able to accept a UK pension transfer, the super fund in question needs to be registered in the UK as a Qualifying Recognised Overseas Pension Scheme (QROPS) – the registration of QROPS is managed by the UK pension regulator, Her Majesty’s Revenue and Customs (HMRC). If you’re looking to transfer your UK pension to your super fund, you should check with your fund to find out if it’s registered as a QROPS or not.

My fund isn’t a QROPS – what are my options?

If your fund is not permitted to receive UK pensions, ATO information suggests you have three main options:

  • Make use of an SMSF

  • Sign up with the Australian Expatriate Superannuation Fund (AESF)

  • Wait until you’re 55 and then have your pension money transferred to an Australian or British bank account from which you can access it

Let’s look at these three options in more detail.

Using an SMSF

Because the rules of an SMSF are set by the trustee(s) – who are also members of the fund – they are relatively flexible, although they must still comply with Australian superannuation and tax laws. It can be a simple matter to set an SMSF up for yourself and have it registered as a QROPS to transfer your UK pension to.

However, unless the amount of money you’re looking to transfer is significant, setting up an SMSF purely for the purposes of transferring your pension across may not be cost-effective. The administrative costs of setting an SMSF up, combined with any specialist advisory services you may require, can stack up quickly.

If you decide that setting up an SMSF will be a cost-effective way of recouping your UK pension, you will need to:

  • Set up your SMSF, making sure that the wording of the trust deed is compliant with UK pension regulations and that the SMSF is correctly set up under Australian law.

  • Lodge a request for your SMSF to be registered as a QROPS with HMRC – this can be done online, and in order to do so you will need to provide the details of your SMSF along with its trust deed.

  • Wait for between four and eight weeks for your request to be processed.

  • Once/if your SMSF is registered as a QROPS, obtain, complete, and submit the required paperwork to release your UK pension and have it transferred to your SMSF.

Once you’ve received your pension funds, you can either carry on using the SMSF, or roll your pension money into your regular super fund and shut down the SMSF in order to avoid dealing with its ongoing administrative requirements.

Source: QROPS Specialists

Signing up with the Australian Expatriate Superannuation Fund (AESF)

The AESF is a fund tailor-made for those looking to have their UK pension transferred to Australia – it had more than 100 members as of December 2017, and will manage the entire pension transferal process for you. However, it does charge fees which are not insignificant, including initial set-up fees, transfer fees, and investment management/administration fees. Check the AESF’s PDS for exact figures.

Transferring your pension money into a bank account

Once you reach 55 (Britain’s current preservation age), you can simply have the money paid out into an Australian or British bank account. However, both options might have tax implications:

  • If you choose to have your whole pension paid out into a British bank account, the UK government’s Pension Wise advises that while the first 25% will likely be tax-free, the remainder will be taxed at your regular marginal tax rate by adding it to the rest of your income earned in Britain.

  • If you choose to have your whole pension paid out into an Australian bank account (which only some pension providers will do), the UK government warns you may be subject to fees or other financial penalty.

Will my transfer be taxed in Australia?

The ATO advises that you may have to pay tax as a result of transferring your UK pension if any portion of the transferred amount was accrued after you became an Australian resident.

I have been an Australian resident for no more than six months

The ATO advises that if you receive your pension payout within six months of becoming an Australian resident, the entire payment should be tax-free if all of the following apply:

  • The entirety of the lump sum was earned/accumulated by you when you were not an Australian resident, or during a period which began after you became an Australian resident but ended before you received the payment.

  • The total sum transferred doesn’t exceed your ‘vested’ amount (i.e. it doesn’t include any top-up or discretionary payments, and consists only of mandatory contributions along with their associated earnings) – the ATO offers examples of how this applies here.

I stopped being employed overseas less than six months ago

The ATO also notes that your transfer should be tax-free if it is made within six months of your employment in the UK terminating.

It has been more than six months since I became an Australian resident and/or since my foreign employment was terminated

If you do not meet the above criteria, received the lump sum more than six months after gaining Australian residency or ceasing employment in the UK, and were an Australian resident when you received the payment, there may be tax implications.

You will need to add some or all of the payment to your assessable income for the financial year it was paid to you, and the assessable portion of the payment should be treated as normal income for taxation purposes according to the ATO. However, if you instead choose to transfer the whole of your UK pension fund directly to a complying Australian super fund, the ATO advises that it will be taxed as assessable income of the superannuation fund rather than as your personal income. The ATO notes that if you choose to have your sum assessed as part of your complying super fund’s assessable income, it will generally be taxed at 15%, which may be less than your marginal tax rate, depending on your income.

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4 Ways The Royal Commission May Change The Superannuation Sector

Australia’s $2.7 trillion plus superannuation industry could be in for a major shake-up, following the banking royal commission’s investigations.

At least a dozen superannuation funds, the majority being bank-owned entities, may have committed misconduct or breached laws, according to the counsel assisting the royal commission’s final submissions report, based on two-weeks of superannuation hearings held earlier this month.

It is now up to Commissioner Kenneth Hayne, AC QC, to deliver findings and make recommendations for the sector.

Canstar Group Executive of Financial Services Steve Mickenbecker said it won’t be just the banks the royal commission would impact, but also the wider superannuation industry.

 

He said there were four key issues the royal commission had raised that he expected would lead to reform:

1. Fees for no service

A number of bank-owned super funds have admitted to charging fees for no service, where fees were taken from members but no service was delivered. This included charging fees for financial advice when no advice was given. Some super fund entities were accused of misleading or deceptive conduct for not clearly explaining fees and for failing to inform members they could opt out of paying fees such as a plan service fee. The relationship between trustees and financial advisers was a major area of concern for the royal commission. A number of superannuation funds and trustees were seen as acting in ways that benefited financial advisers to the detriment of members. This included maintaining grandfathered commissions (allowing an old rule to continue while a new rule applies) without considering whether the trustee was legally required to stop paying those commissions. It also included instances of charging members’ accounts with ongoing adviser fees without putting adequate systems in place to assess if the services were being provided.

Potential reforms: The report questioned whether there needs to be legislative changes, including a law that bans all commissions payable from superannuation products and puts an end to ‘grandfathering’ in relation to superannuation. Other possible changes raised included banning ongoing service fees, including advice fees. These changes could mean financial advisers would only be allowed to be paid for once-off advice from a member’s superannuation account, however consumers could decide whether to arrange ongoing payments from their account for financial advice.

2. The role of trustees

Trustees are obliged to act in the best interest of their superannuation fund members, however the royal commission found conflicts of interest where trustees were concerned, including the influence shareholders of industry super funds had on decisions.

Potential reforms: The report questioned whether a civil penalty should apply if trustees’ obligation to act in the best interests of members was contravened. It also raised the possibility of extending the obligation to shareholders of trustees and any other related bodies that could affect the interests of superannuation fund members.

3. Industry regulators’ effectiveness

The royal commission examined how the two key super industry regulators, the Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC), policed the sector. APRA said it did not publicly identify specific super funds’ wrongdoings and instead worked with the trustee to resolve the issue.

Potential Reforms: The role and power of the regulators will likely be up for further debate and potential changes. The final submissions report said APRA’s and ASIC’s approach to the regulation of superannuation entities was not sufficient to deter wrongdoing and questioned what could be done to encourage regulators to act promptly on cases of misconduct or potential misconduct.

4. Underperforming super funds

The royal commission heard evidence around underperforming super funds, including negative returns for some superannuation customers with cash investments. Of particular concern was the underperformance of some low-cost MySuper products. Super funds are required by law to transfer existing default funds, an employer-nominated fund, to a no-frills low-fee account under the federal government’s MySuper regime.

Potential reforms: APRA is the body tasked with authorising MySuper products – however, the final submissions report said it would be preferable to have a separate expert panel to regularly review outcomes for MySuper products.

What is next for the royal commission?

Commissioner Hayne will submit an interim report by 30 September 2018 and will provide a final report that is expected to contain key recommendations by 1 February 2019.

The royal commission will turn its attention to insurance with hearings to start on 10 September 2018.

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Royal Commission hears from AMP, Suncorp, NAB & more

The final week of the royal commission’s superannuation hearings has delved into misconduct ranging from charging deceased clients to failing to transfer customers to low-cost accounts.

Representatives from Suncorp, National Australia Bank, Commonwealth Bank’s super arm Colonial First State, Hostplus, ANZ and AMP were among the witnesses who testified this week.

The royal commission revisited NAB on Monday after its strong focus on the bank the prior week in relation to inappropriate superannuation fees, including fees-for-no service and the possibility that it had breached criminal and civil laws.

Throughout the week, the commission explored how trustees were using members’ money and how some were slow to rollover members’ money into the federal government’s low-cost MySuper regime introduced in 2014.

The commission’s two-weeks of hearings into Australia’s $2.6 trillion superannuation sector is due to wrap up today.

Counsel Assisting the royal commission Michael Hodge, QC, has focused on how the regulators are policing the sector so far today.

Helen Rowell, deputy chair of the Australian Prudential Regulation Authority (APRA), is in the witness box this morning.

She is expected to be followed by the Australian Securities and Investments Commission’s (ASIC) senior executive Tim Mullaly.

Here are some of the key events and issues raised this week:

AMP vows to reduce superannuation fees

AMP Super chairman and non-executive director Richard Allert was quizzed about low returns and high fees for some fund members.

Mr Hodge asked why members who put their retirement savings with AMP, and who had those savings invested 100 per cent in cash, ended up with substantially lower returns than if they had invested their savings in an interest bearing account with AMP bank.

Mr Allert admitted that some members would have been better off with their money in a savings account.

He also told the commission that AMP superannuation trustees would reduce fees and refund a total of $5 million to about 12,500 of its customers with cash investments that had a negative return.

Super funds response to new low-fee regime

The royal commission probed several retail super funds’ response to the federal government’s low-fee MySuper regime.

Under the regime, if a person has not chosen a super fund, then the employer must pay contributions to a super fund that offers MySuper, that is a low-cost account.

Commonwealth Bank’s wealth management business Colonial First State was one of the companies queried about why it missed the 2014 deadline to transfer funds to a MySuper account and instead kept them in higher fee accounts.

Colonial First State Executive General Manager Linda Elkins told the commission that Colonial had committed 15,000 breaches of the law over its handling of the MySuper transfers.

However, banking regulator APRA did not prosecute the offences and instead put in a plan to gradually move the accounts over.

Suncorp queried about additional fees

Suncorp used tax surplus for administration costs rather than return the money to members, the royal commission heard earlier in the week.

The head of Suncorp’s superannuation trustee, Maurizio Pinto, was asked about payments, including an $8-million tax surplus that belonged to Suncorp Life and Superannuation members.

Mr Pinto told the royal commission that the surplus was used for administration services and admitted the fees were not included in the fund’s product disclosure statement.

Hostplus defends $260,000 entertainment bill

Industry superannuation fund Hostplus said it spends hundreds of thousands of dollars of its members’ money on entertaining employers at the Australian Open tennis tournament each year.

Hostplus CEO David Elia told the commission that the company spent $260,000 on about 120 employers from across the country at the Australian Open last year.

When asked why this was necessary, Mr Elia said it was a competitive market for the industry fund that specialises in the hospitality, tourism, recreation and sport sectors.

“Our competitors are doing exactly the same thing,” he said.

He said the fund had lost business in the past, including one of the largest hotel chains in the world, because the “CEO did not have a relationship” with Hostplus.

 

National Australia Bank returns for more questions

NAB’s former head of wealth and current chief customer officer Andrew Hagger returned to the royal commission on Monday where he was questioned about why the bank did not tell corporate regulator, the Australian Securities and Investments Commission (ASIC), the size of its fees-for-no service problem in 2016.

The royal commission heard evidence that NAB increased its compensation payout from $16.2 million for 120,000 customers to $34 million for 220,000 customers charged fees for no service but it did not inform ASIC of the increase.

Counsel Assisting Michael Hodge, QC, suggested that NAB withheld the information because it knew ASIC was due to release a report about the industry’s fees-for-no-service and it was afraid the larger payout would result in NAB no longer being “in the middle of the pack” among the banks caught up in the scandal.

Mr Hagger told the commission that he had called ASIC about it which “put it out of our hands whether it should be included or not because the invitation was there for ASIC to include it …”.

What is next?

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry is yet to draw its conclusions from its investigations.

It will submit an interim report by September 30 and a final report early next year.

The superannuation round is the commission’s fifth round of public hearings. There are two more rounds to go, which will focus on insurance.

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Superannuation and Capital Gains Tax

When you sell an asset and make a profit on your initial purchase, that profit is called a capital gain, and according to the Australian Taxation Office (ATO), you may have to pay tax on it.

Superannuation funds buy and sell investments to make a profit, and are also subject to capital gains tax, but as the ATO points out, there are a couple of differences in how it works.

What is capital gains tax?

As the ATO explains, the capital gain on the sale of an asset is the difference between how much you bought the asset for and how much you sold it for. So, if you bought a bundle of shares for $1,000 and sold it for $1,500, then the capital gain you made would be $500. The capital gains tax would be the tax you paid on that $500 gain. There isn’t a separate set rate for capital gains tax; instead, the ATO points out that the percentage capital gains tax you pay is based on your marginal tax rate. In other words, according to the ATO, capital gains tax is actually part of your income tax rather than being a separate tax.

The ATO indicates that, just like any other taxpayer, superannuation funds are also potentially liable to pay capital gains tax for any profit made on buying and selling fund assets. This applies to all super funds. If you have a super fund, you may not see capital gains tax as a separate transaction, because investment returns are usually added to your account once the fund has done the buying and selling of assets and paid any tax due to the ATO. You’re more likely to see the effects of capital gains tax if you have a self-managed super fund (SMSF) that buys and sells assets like property or shares.

While super funds are potentially subject to capital gains tax on asset transactions, the ATO suggests the amount they pay can end up being less than you would if you bought and sold the asset outside of super.

Capital gains tax differences in superannuation

As outlined by the ATO, the tax treatment of a super fund depends on whether an account is in accumulation phase or pension phase. The accumulation phase is what you will be in for the majority of your life, while you are working and contributing to your super. The pension phase usually starts when you retire and draw an income from your account.

According to the ATO, during the accumulation phase your super fund will typically receive a discount of one third, or 33%, on any capital gain made on the sale of an asset it holds for at least 12 months. Because the ATO notes the tax rate for super funds is generally a flat 15%, the discount means the super fund will effectively pay a tax rate of 10% on the gain. While the ATO points out that an individual can potentially apply a 50% discount to capital gains where an asset is owned for at least 12 months, because most people have a higher marginal tax rate than the 15% super fund rate, you could end up paying more capital gains tax if you owned the asset yourself compared to within a super fund.

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NAB, Australian Super & IOOF face royal commission super hearings

Fees for no advice, conflicts of interest and a controversial TV commercial were tackled during the royal commission’s first week of superannuation hearings. Here is a roundup of what happened.

Hodge: super trustees “left alone in the dark with our money”

Senior counsel assisting the royal commission Michael Hodge, QC, opened with questions around the transparency of super fund trustees, those responsible for acting in the best interests of members.

“What happens when we leave these trustees alone in the dark with our money?” Mr Hodge asked during his opening statement.

“Can they be trusted to do the right thing?”

He said it was important to protect Australians’ retirement savings and this partly involved understanding the entities that own or control the trustees and to what extent they act in ways that can be “detrimental to members.”

“Trustees are surrounded by temptation – to preference the interests of their sponsoring organisations, to act in the interests of other parts of their corporate group, to choose profit over the interests of members, to establish structures that consign to others the responsibility for the fund and thereby relieve the trustee of visibility of anything that might be troubling,” he said.

He also questioned whether the current regulatory system was adequate in protecting retirement savings.

 

National Australia Bank representatives and a former employee were the first to take the stand and testify this week, followed by witnesses from the country’s largest super fund, AustralianSuper, and from financial services company IOOF.

So far, the royal commission has heard evidence of misconduct and conduct that falls below community expectations.

More super industry stakeholders will take the stand next week, in what will be the second and final week of the royal commission’s superannuation hearings.

All up, it is the commission’s fifth round of hearings into the financial sector.

NAB is being investigated over ‘fees for no service’

Commissioner Kenneth Hayne warned on Wednesday that NAB could face criminal charges for imposing fees for no service on superannuation customers, amid a wider fees for no service scandal to have hit the financial sector.

The royal commission also heard that NAB continued to charge advice fees to customers after they died and questioned whether taking money for no service breached criminal and civil laws.

NAB chief executive Andrew Thorburn released an apology on Twitter on Thursday.

It was also revealed during the hearings that corporate regulator ASIC was investigating NAB and its subsidiaries for 110 potential criminal breaches of the Corporations Act.

The hearing got heated when NAB counsel Neil Young, QC, suggested witness Nicole Smith, a former chairwoman of NAB’s super arm NULIS did not need to answer any further questions on a certain matter involving a disputed document.

Mr Young said: “On our instructions her answer will be that she had no involvement.”

Commissioner Hayne responded: “You will not give her, her answer Mr Young. You will not.”

NAB’s request to keep some of their documents confidential was also overturned by Commissioner Hayne as he said it was in the public’s interest to have them released.

AustralianSuper’s “fox and henhouse” ad under the spotlight, questioned over investment in The New Daily

AustralianSuper chief executive Ian Silk faced examinations from senior assisting counsel Mr Hodge over its funding of a controversial “fox and henhouse commercial which attacked super funds run by the big banks.

Mr Silk told the royal commission that the industry super fund sold its stake in The New Daily to Industry Super Holdings in 2016 for nothing after having spent $2 million of members’ money in setting up the news site.

Under the microscope

The boss of wealth manager IOOF took the stand on Friday where he was questioned about pricing, grandfathered trail commissions and conflicts of interest.

Mr Hodge tendered a letter IOOF had received from the financial services regulator APRA about concerns around how the company handled the conflict of interest between super fund members and shareholders.

Mr Kelaher said he did not believe there was cause for concern.

It was also revealed during Friday’s hearing that the company had tendered hand-written board meeting notes.

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What Was The 10% Rule For Super Contributions?

Prior to 1 July 2017, individuals had to meet strict rules to make personal deductible super contributions, but it’s a little bit easier to do so since changes came into effect from the 2017/18 financial year.

What was the 10% rule?

According to the Australian Taxation Office (ATO), up until 30 June 2017, individuals had to meet the ‘10% rule‘ or ‘10% test’ to be eligible for a tax deduction for personal super contributions.

This rule meant it could be quite hard for employees to get extra pre-tax (concessional) contributions into their super fund unless their employer was prepared to enter a salary sacrifice arrangement. It could also be challenging for anyone combining self-employment with work as an employee. 

The 10% rule was, as the ATO details, a legal requirement which stipulated that any individual could not claim a tax deduction for personal superannuation contributions if they received 10% or more of the following as an employee:

  • assessable income plus
  • reportable fringe benefits plus
  • total reportable employer superannuation contributions.

The ATO points out that this rule applied even if the employer didn’t make superannuation contributions on behalf of the employee.

 

The 10% rule caught many ostensibly self-employed people, especially during the start-up phase or periods of low business activity where they may have picked up extra employed work to supplement their business income. You can read some examples provided by the ATO of how the 10% rule was applied here.

 

 

Why was the 10% rule scrapped?

As explained by the ATO, the 10% rule was removed effective from 1 July 2017 for several reasons. Superannuation lobby groups argued it was unfair to those with out-of-the-ordinary employment arrangements, and created unnecessary red tape in the superannuation system. Both the SMSF Association and the Institute of Chartered Accountants of Australia had fought for a change to the rule as early as 2014, arguing that it no longer made sense in the wake of changes to superannuation made in the 2000s.

 

The rule was abolished in the May 2017 Federal Budget. Now the ATO notes no such restrictions on individuals looking to make tax-deductible contributions. Regardless of whether they’re employed, self-employed, or a combination of both, most people should be able to claim tax deductions for personal super contributions provided they follow the steps outlined by the ATO.

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Australian income tax rates for 2018/2019

– New tax offset and higher 32.5% tax threshold for 2018/2019 year – Income tax rates for 2018/2019 financial year (subject to legislation)

On 8 May 2018, in the 2018 Federal Budget, the federal government announced new tax relief measures, with some commencing from 1 July 2018 (2018/2019 financial year), subject to legislation.

In this article, you can also find the Australian income tax rates applicable for the 2018/2019 financial year, the 2017/2018 financial year.

Note:

If you’re Age Pension age or older, you may be eligible for a higher tax-free threshold by taking advantage of the Seniors & Pensioners Tax Offset (SAPTO).

The Australian tax financial year runs from 1 July to 30 June of the following year; for example, the 2017/2018 financial year is 1 July 2017 through to 30 June 2018, and the 2018/2019 financial year is 1 July 2018 through to 30 June 2019. The income tax rates for the 2018/2019 year, for the 2017/2018 year and for the 2016/2017 year (and earlier financial years) are set out below.

Note: The primary source for taxpayers on any information relating to tax brackets and individual tax rates is the Australian Taxation Office website (www.ato.gov.au

New tax offset and higher 32.5% tax threshold for 2018/2019

For the 2018/2019 financial year, the federal government announced 3 significant changes to the income tax rules, in the 2018 Federal Budget:

  1. Low and Middle-Income Tax Offset. From 1 July 2018 until 30 June 2022 (for only 4 years), the application of a Low and Middle-Income Tax Offset (LAMITO) for Australians with a taxable income of less than $90,000. The Low Income Tax Offset (LITO) will continue to apply, alongside the LAMITO (for information about LITO, see SuperGuide article LITO: What is the Low Income Tax Offset, and how does it work?). According to the federal government, the LAMITO will provide tax relief of up to $530 a year for affected taxpayers (for more information about LAMITO.
  2. Raising the marginal tax rate threshold for 32.5% tax bracket. From 1 July 2018, raising the marginal tax threshold for the 32.5% tax bracket to $90,000 (from $87,000). Note that this tax threshold was also raised from 1 July 2016 to $87,000 (from $80,000).
  3. Medicare levy will remain at 2%. Previously, the federal government had announced that the Medicare levy would increase to 2%, and the additional 0.5% would be directed to the National Disability Insurance Scheme. The increase to 2.5% is no longer going ahead and the federal government is funding NDIS from consolidated revenue

Income tax rates for 2018/2019 financial year (subject to legislation)

The tax-free threshold is the first $18,200 of your income. You can earn up to $20,542 before any income tax is payable, when taking into account the Low-Income Tax Offset. For those earning under $125,333, a Low and Middle-Income Tax Offset (LAMITO) will also be available, with those Australians on a taxable income of between $48,000 and $90,000 receiving the maximum LAMITO of $530.

For the 2018/2019 year, your top marginal rate of income tax rate can be 0%, 19%, 32.5%, 37% or 45% (plus Medicare levy).

Note: For the 2018/2019 year, the 37% marginal tax rate takes effect when your taxable income exceeds $90,000. For the 2017/2018 year, the 37% marginal tax rate takes effect when your taxable income exceeds $87,000. For previous financial years (before July 2016), the threshold for the 37% tax rate is $80,000.

Income tax rates for 2018/2019 financial year (subject to legislation)

Income Marginal tax rate:

  • $0-$18,200 0%
  • $18,201- $37,000 19%
  • $37,001-$90,000 32.5%
  • $90,001-$180,000 37%
  • $180,001 and above 45%

Source: Adapted from information on the ATO website (www.ato.gov.au).

* You can earn up to $20,542 before any income tax is payable, when taking into account the Low-Income Tax Offset (LITO). For those earning under $125,333, a Low and Middle-Income Tax Offset (LAMITO) will also be available, of up to $530 (subject to legislation).

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What Happens to Your Super if You Move Overseas?

If you’re moving permanently or indefinitely to another country, what happens to your super?

Even if you’ve only worked in Australia as a temporary resident, it’s likely you’ve received super contributions. According to the Australia Taxation Office (ATO), the rules for what you can do with your super when you leave the country depend on your citizenship or residency status. This article explains the general rules regarding your super if you move overseas, but your circumstances may be different; it’s always a good idea to seek independent financial advice for your specific situation.

What happens to my super if I am an Australian citizen or permanent resident?

The ATO advises that if you’re an Australian citizen or a permanent resident, you probably won’t be able to access your super just because you’re going overseas, even if you’re moving away permanently. Your super will remain subject to the same rules as when you resided in Australia, accessible when you reach the preservation age and retire or if you meet one of the other conditions of release.

But while you can’t access it early, your super will still be there, generating returns for when you do retire. If you’re moving overseas but working for an Australian employer, your employer may still need to make super contributions into your account on your behalf.

There is one exception to be aware of that may allow you to access your Australian super fund. If you’re moving to New Zealand you may be able to take advantage of the Trans-Tasman portability scheme, allowing you to transfer your super to a KiwiSaver account. This means you may be able to move your Australian super to the equivalent New Zealand scheme without having to retire or meet one of the other conditions for release, although your money will be subject to New Zealand laws. As the ATO points out, there are a number of rules to comply with, you may have to pay exit fees for your current fund and you can only transfer from a fund regulated by the Australian Prudential Regulation Authority, not from others such as a self-managed super fund.

What happens to my super if I am a temporary resident?

If you were only a temporary resident of Australia and you are now leaving, you might be eligible for a departing Australia superannuation payment (DASP). To do so, the ATO indicates you need to have left Australia, had your visa expire or be cancelled and not be a citizen of Australia or New Zealand.

If this is the case, either you or an authorised representative could be able to contact your super fund trustee and request the release of your super.

Within 28 days after receiving your application you should receive your payout by electronic funds transfer or cheque, minus the applicable taxes. According to the ATO, the current rate is a flat 65% for anyone who was a working holiday maker or a 35% rate for the taxed portion and 45% for the untaxed portion for everyone else. Usually, there is no tax levied on the tax-free component.

 

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5 Savvy Things To Do With Your Money In Your 30’s

Kicking career goals, getting married, starting a family and buying your own home – these are some of the key rites of passage you may encounter in your thirties. Here are a few tips to develop your fiscal fitness to get you through this decade and the years ahead.

Your thirties are the years where financial decisions can become more complex and costly as your responsibilities stack up. Here a few ways to help build and protect your wealth during these crucial years of your life.

1. Kick your career into gear

Your thirties are a great time to assess whether your career goals are on track. According to a study by Seek, 62% of participants felt they weren’t reaching their full potential at work.

Whether you are in need of a career change or are keen to move up the ladder, there are a number of things you can do to move closer to your vocational goals.

It might be worthwhile spending some time reassessing and mapping out your dream career, doing some networking with people in your industry, exploring new education and training opportunities or preparing for a pay rise negotiation with your employer if you love your job but feel underpaid

2. Revamp your budget

Having a household budget can be an indispensable way to plan household finances and develop a good savings pattern. If you started a budget in your twenties, you will likely need to adjust it as your financial needs grow.

Wedding planning and family planning can be very costly, so it’s worthwhile taking the time to factor those expenses into your budget and avoid drawing from your precious retirement savings.

Budgeting tends to make managing personal finances easier and can help make sure your needs, both short and long-term, are being fulfilled before your wants.

3. Be wise with that increased cash flow

Your thirties can be a time when you start to make headway in your chosen profession and your salary can begin to increase. While it is common for some people to reward their hard work by relaxing their budget, an increase in earnings presents an opportunity to boost your savings or grow your wealth through investing.

If you prefer a low-risk approach to growing your wealth, committing your earnings to a high-interest savings account or a term deposit could be a way to slowly build up your cash. Both have pros and cons to consider, and since interest rates are currently low, it may be worth thinking about investing your extra earnings in other areas.

Another idea could be to funnel your savings into a mortgage offset account if you’re a home owner, which could help you reduce the total loan amount on which you pay interest.

4. Reduce your credit card debt

One of the golden rules of financial planning is often to clear your most expensive debt first. Bad debt such as a high-interest credit card debt could be a good one to clear off in your thirties.

If you can’t eliminate your debt entirely, consider a balance transfer or switching to a low-rate credit card. A balance transfer will allow you to transfer the balance of your credit card to a new credit card from a different financial institution with little or no interest for anywhere from 12-24 months.

As well as the promotional interest rate, make sure you consider fees for the cards and the interest rate the card transitions to after the low interest or interest-free period when comparing. Also, be aware each application you make is added to your credit file, meaning it might not be a good idea to switch too often.

5. Be ‘super’ tricky

Choosing the right Superannuation fund in your thirties can play an important  role in securing a financially stable future. Despite Super often being crucial to our retirement plans, it’s an aspect of our finances that doesn’t always get the attention it deserves.

Your thirties is a prime time to engage with Super, there are many important factors to consider when choosing the right Superfund for you, including fee’s, performance, insurance, education and regular updates on a quarterly basis.

One of the golden rules of financial planning is often to clear your most expensive debt first. Bad debt such as a high-interest credit card debt could be a good one to clear off in your thirties.

If you can’t eliminate your debt entirely, consider a balance transfer or switching to a low-rate credit card. A balance transfer will allow you to transfer the balance of your credit card to a new credit card from a different financial institution with little or no interest for anywhere from 12-24 months.

As well as the promotional interest rate, make sure you consider fees for the cards and the interest rate the card transitions to after the low interest or interest-free period when comparing. Also, be aware each application you make is added to your credit file, meaning it might not be a good idea to switch too often.

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