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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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How Departing Australia Superannuation Payments (DASP) Works?

Guide to departing Australia superannuation payments (DASP), how they work, and how you can go about applying for one.

If you are (or were) a temporary resident or a ‘working holiday maker’ (WHM) in Australia and accumulated superannuation during your stay, you may be able to withdraw your super as a lump sum payment when you depart the country if you meet certain requirements.

How do departing Australia superannuation payments (DASPs) work?

Temporary residents working in Australia under an appropriate visa generally accumulate super. That means super remains locked up with the fund or the Australian Tax Office (ATO) if the visa expires or is cancelled and you leave Australia. The good news is the DASP system can provide a way to receive super as a lump sum after leaving the country.

An ‘appropriate visa’, according to the ATO, is any temporary resident visa not from retirement subclasses 405 and 410 and holders of these visas are usually entitled to super just like any eligible worker in Australia, subject to the same preservation rules.

Whether your super is being held by a fund or the ATO will depend on how long it’s been since you left Australia without claiming a DASP; if it’s been six months or more since you left Australia, your visa has ceased to be in effect and you have not claimed DASP, your super fund(s) is required to transfer your balance to the ATO as unclaimed super money (USM). According to the ATO, you can apply for a DASP regardless of who has your super, however you may have to use a different application method.

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5 Money Mistakes to Avoid in Your 40s

With a few decades under your belt and a few solid life lessons learnt, your forties can be a pivotal decade when it comes to your finances. And while habits developed in your twenties and thirties may have helped you achieve your targets to date, your forties are a great time to get yourself on the path to achieve some big financial goals.

Here are some potential money mistakes to avoid in your forties; whether you have teenage kids, young ones, a growing family or no kids at all, we’ll give you some pointers to think about.

1. Living too large

It can be tempting to overspend by striving to keep up when others around you are spending big on houses, holidays and luxury items. However, this is rarely wise. Be especially careful of overspending on your house or car and make sure you don’t accumulate more liabilities than you can afford. It’s also important to avoid falling into the trap of overspending as you earn more by using increased cash flow wisely.

By reviewing and resetting your budget, tracking your spending, taking care of credit card debt, boosting your credit rating, setting savings goals and understanding your financial options you can prevent yourself from overspending.

2. Making minimum mortgage repayments

If you’re a home owner, your forties can be a great time to clear away a lot of your home loan. It can be easy to fall into old habits that may have started in your twenties or thirties. So if you entered the property market making minimum or interest-only payments because it was all you could afford at the time, try to break the habit by using any extra cash flow to step up your repayments. That is, unless you are deliberately making minimum payments as part of a negative gearing strategy.

Similarly, be aware of overextending yourself by treating your mortgage offset account or redraw facility like and ATM. Borrowing from the equity in your home loan or withdrawing extra cash from your offset account to fund an overseas holiday isn’t generally a smart idea.

Paying off as much as you can afford during your forties could help you own your home sooner, while saving money on the cost of the loan.

3. Ignoring the importance of Superannuation

Despite being critical to our retirement plans, it is an aspect of our finances that doesn’t always get the attention it deserves. If your super balance isn’t looking as healthy as you’d like, and you’re counting on the pension to finance your retirement, you may be in for a shock. According to the Department of Human Services, the maximum single pension you can receive per fortnight is $907.60. While that might stretch far enough to cover basic living expenses like groceries and electricity, it’s not likely to cover those relaxing trips abroad you’ve been fantasising about.

Have more than one super account? You might consider rolling them over into one to potentially reduce fees. You may also want to consider salary sacrificing additional pre-tax contributions, on top of your employer’s mandatory 9.5% superannuation guarantee contribution. Depending on your circumstances, another option is to make after-tax contributions to help build your super and potentially attract government co-contributions, if you’re eligible.

4. Putting your kids' education ahead of your retirement

If you’re a parent, your forties can be a great time to accelerate savings plans for funding your children’s high school or tertiary education. If you can afford to fund your child’s study and give them a head start, that’s great. But be careful of putting their education before your own retirement plans. If you don’t make plans for your retirement now, it can be harder to catch up later. In terms of budgeting, it’s a good idea to work out how much you’ll likely need when you retire and calculate your budget and any inclusions you’d like to make.

5. Postponing planning for the future

It might not be pleasant to think about, but taking the time to get your will in order now can make your passing much less stressful for your family.

It’s never fun to think about what might happen after you die, but avoiding it isn’t a great idea either, particularly if you have children to care for, spouses to support or considerable assets amassed. One of the most important steps in planning for the only certainty in life is to make sure you have a valid will in place. Without one, your assets may not be distributed as you had hoped, yet it is estimated that half of all Australians die without having a will in place. It’s also worthwhile considering the pros and cons of trusts, which can be a great way to protect your assets.

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Productivity Commission’s Superannuation Report, the Super real facts

Just when you thought there couldn’t possibly be any more superannuation news, the independent but government-funded Productivity Commission has delivered a massive draft report into the entire industry.

The Superannuation: Assessing Efficiency and Competitiveness draft report is causing waves in finance circles, so what is it about?

The draft report, released on 29 May found the current super system has ‘structural flaws … harming a significant number of members, and regressively so.’ Fixing these structural problems could lead to a significant increase in retirement savings. The key problems the report highlighted were the proliferation of multiple accounts and underperforming funds across the sector.

What is the Productivity Commission?

The Productivity Commission is an independent body, established to provide research and advice to the Government across all issues affecting the Australian population. The Commission was requested by the Treasurer, Scott Morrison, to investigate the superannuation industry, with a particular eye on their efficiency and competitiveness.

What were the Commission’s findings?

The Commission identified several problems impacting the performance and competitiveness of the super industry, mainly connected to customers’ lack of access to information to properly compare their options. While the Commission found there were products on offer that did suit most consumer’s needs, they were difficult to find amidst all the options on offer. Even when consumers can find products that suit their needs, they often lack the necessary information to properly compare them to other offerings, leading to confusion.

Another problem the Commission identified is underperformance of investments, coupled with fees and insurance cover eroding what gains were made. While there were high-performing funds out there, the draft report found many underperform by a significant margin, particularly amongst retail funds. The returns from these underperforming funds’ may make a substantial difference in the amount you have when you retire, potentially adding up to tens or even hundreds of thousands over the course of a career. This can be exacerbated by high fees and excess or duplicate life insurance policies eating away at what gains were made.

Further, about 10 million super accounts, or a third of all super accounts, were unintended and unnecessary duplicates. Duplicate super funds can result in duplicate fees and life insurance costs, further eroding savings. Regulation was also found to be lacking, often focusing more on funds than providing necessary information to fund members.

Finally, the Commission found the way the current default super system operates could be ‘harmful’ to members. Default funds are those you are allocated by your employer if you don’t nominate your own choice. While default funds do have to conform to certain standards, these don’t include performance, leaving some members at risk from an underperforming fund.

What needs to be done?

In response to these problems, the draft report proposed a new way of allocating default funds, taking the choice away from individual employers. It proposed setting up a new organisation to determine default funds, with strict criteria and an emphasis on low fees and a history of performance. Members would also only be allocated a default fund once, when they enter the workforce, eliminating the problem of receiving a new fund with every employer.

Under the Commission’s recommendations, individual workers would still be able to choose their own fund over the default option but should be provided with a shortlist of competitive options, instead of the tens of thousands of options they have access to now.

The report also recommends a strengthening of regulation and governance, with a particular emphasis on insurance, board appointments and mergers. It also states that regulators need to focus more on fund members, providing them with relevant information.

There is no set date for the Government to respond to the report, but the Commission has outlined a plan to implement recommendations by 2020.

In the meantime, there are a few things you can do to make sure you’re making the most out of your super. You should consider consolidating your funds, meaning you will avoid paying duplicate fees and insurance. You should also look at the performance of your fund and compare it to others out there. As the Commission’s report has highlighted, performance can make a huge difference in the size of your super fund by the time you retire.

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