Retirement
It's time to review what you want from superannuation
With the end of the year almost upon us, now is the time you reviewed your super strategy in order to kick your retirement goals in the new year.

It's time to review what you want from superannuation
With the end of the year almost upon us, now is the time you reviewed your super strategy in order to kick your retirement goals in the new year.

In Australia over the past several years there has been a drive for yield - it's understandable but not sustainable
Clients I meet generally fall into three categories when it comes to their retirement capital:
• those that want to draw an income and build capital,
• those for whom capital preservation is paramount, and finally
• people who are happy to consume their capital.
The first two groups usually have estate planning and intergenerational wealth transfer at the heart of their thinking and all groups generally have concerns about longevity of their capital and having an acceptable standard of living.
Of course, there are a number of factors that can and will affect the outcome, think risk versus reward, investment returns, life expectancy, drawdown rates, and legislative factors including minimum superannuation pension percentages and more recently taxation in particular where member account balances exceed $1.6 million.
This list is not extensive, and given there are so many variables, it causes me to consider whether clients can really get what they want?
One of my colleagues commented just last week that his client drew their pension, the fund had good income which sustained the drawdown, they also had some growth come through on the portfolio and they still queried the outcome.
So, can clients really have it all when it comes to retirement savings and investing and what is ‘all’?
In Australia over the past several years there has been a drive for yield, it's understandable but it’s not sustainable and we are starting to see that change with many of the companies listed on the ASX cutting dividends. So, why is that you ask?
It's particularly attractive for super fund investors when you consider that if a share is paying 6% yield but adding franking credits increases that to 8.5%, especially when this compares to the cash rate at say 1.75%, chasing the income and franking credits just makes senses. But, let’s put that into perspective with interest rates at historically low levels and many Australian companies highly geared, a 1% increase in interest rates could make the company vulnerable.
Let's tackle super pensions. Retirees drawing a super pension start out at 4% per annum for under 65 year olds, then for a decade from 65 to 74 the rate is 5%, levering up 2% to 9% over the next decade and again levering up, by 5%, reaching 14% for the 95+ age group. That means that the government is mandating that pensioners consume at least some of their capital as they age; and has set up a situation where pension funds are chasing yield and franking credits to sustain the drawdown (as much as possible). In theory people should be or are less willing to take on risk as they age, and outperforming markets year in year out is difficult, even for so called "champion stockpickers" and professional investors. And the government doesn't want too many assets passed through generations that receive tax concessions.
Further on the tax front, prior to the Budget 2016 announcements once a superfund member commenced a pension, tax was turned off in the fund. However new rules are set to turn off the tax on pension accounts less than $1.6 million (indexed), meaning that any remaining funds above the limit will remain in accumulation and incur up to 15% tax on income ongoing. Also, strategies such as recycling pensions (which effectively changed the tax status of member accounts) and the inability of members to make after tax contributions once the cap is reached, have been limited with new non concessional contribution rules.
From a tax planning point of view, the importance of these changes as they relate to the distribution of superannuation benefits to adult children who are non-tax dependants can mean a substantial difference to what they receive without tax penalty. Generally, adult children are forced to receive superannuation death benefits as a lump-sum payment which is taxed according to the components that flow from the superannuation benefits. That means the level of taxable and tax free components. Broadly any tax-free component of the lump-sum is received tax-free, whereas top-up tax is due on the taxable amount.
Returning to investing, the scorecard is in. In Australia active managers struggle to outperform the benchmarks with more than 60% of Australian Broad Cap Fund managers underperforming over the last five years, and for those international equity, Australian Bond Fund and Australian REIT managers the rates is higher at more than 80% for each; according to the SPIVA Australia Score Card Year End 2015. That means for the average investor they are likely better off with a core index ETF strategy, which provides broad exposure and comes at a substantially lower cost with perhaps a satellite of active managers around that depending on the individual needs.
It is important to consider your changing needs and goals as you move through your life, as lifestyle and standard of living change over time, particularly as people transition to full retirement with a pot of money to sustain them throughout the rest of their life and achieve their estate goals. From that point of view it’s worth considering shifting focus from contributions to benefits where the investment allocation is based on achieving the desired outcome at different stages of life, taking into account downside risk, longevity risk and inflation to help clients reach their financial and lifestyle goals and maintain an acceptable standard of living throughout their lifetime.
In the past few weeks I have been contacting clients to re-open discussion on strategies in light of the changing landscape in markets and superannuation, refocussing on diversified portfolios that provide reasonable returns with an appropriate amount of risk at a lower cost, and determining what the implications are for meeting that persons needs and expectations going forward. My best advice is speak to a financial planner, clarify what it is you are trying to achieve, review and make any changes needed. Whilst it may be more complex to take a benefits approach, it may just get the person what they want overall.
Genene Wilson, senior financial planner, Omniwealth

Superannuation
Senator slams super funds: ‘People are smarter than super funds think’
Senator Andrew Bragg has hit out at superannuation funds after they stood up in opposition to the government’s alleged plan to ask workers to choose between putting money in their super or having m...Read more

Superannuation
Why opt-in super proposal is a ‘secret tax’ on Aussie workers
A proposal to give workers the option to pick between a wage rise or a super contribution increase has been slammed by industry funds, branding it as “a secret tax” on workers. ...Read more

Superannuation
Early super access could be less than expected
Money accessed through the early release of super scheme looked to be coming in under the government’s revised expectations as the scheme drew to a close at the end of 2020. ...Read more

Superannuation
Proposed super reforms to rob millions of Australians
Australia’s largest union has rejected the government’s new super reforms on the basis it will leave members worse off long-term due to being “stapled” to a high-fee fund. ...Read more

Superannuation
ISA takes another shot at super reforms, accuses government of favouring big banks
Just a few days after hitting out at the government’s Your Future, Your Super scheme, ISA is at it again, signalling to the government that it may have a fight on its hands when it comes to this now...Read more

Superannuation
Royal commission reforms pass Parliament signaling more super oversight
The first bill implementing recommendations from Hayne’s banking royal commission has passed through the Parliament. ...Read more

Superannuation
Fears half of super system may be exempt from performance test
While the Your Future, Your Super measure has been a topic of debate for weeks over its ability to create possibly unintended consequences, new questions have emerged about the measure’s ability to ...Read more

Superannuation
AustralianSuper tops $200bn in assets, aims for mega fund title
AustalianSuper has become the country’s first fund to top $200 billion in assets despite the harsh economic conditions which saw Australia dive into its first recession in 30 years. ...Read more

Superannuation
Senator slams super funds: ‘People are smarter than super funds think’
Senator Andrew Bragg has hit out at superannuation funds after they stood up in opposition to the government’s alleged plan to ask workers to choose between putting money in their super or having m...Read more

Superannuation
Why opt-in super proposal is a ‘secret tax’ on Aussie workers
A proposal to give workers the option to pick between a wage rise or a super contribution increase has been slammed by industry funds, branding it as “a secret tax” on workers. ...Read more

Superannuation
Early super access could be less than expected
Money accessed through the early release of super scheme looked to be coming in under the government’s revised expectations as the scheme drew to a close at the end of 2020. ...Read more

Superannuation
Proposed super reforms to rob millions of Australians
Australia’s largest union has rejected the government’s new super reforms on the basis it will leave members worse off long-term due to being “stapled” to a high-fee fund. ...Read more

Superannuation
ISA takes another shot at super reforms, accuses government of favouring big banks
Just a few days after hitting out at the government’s Your Future, Your Super scheme, ISA is at it again, signalling to the government that it may have a fight on its hands when it comes to this now...Read more

Superannuation
Royal commission reforms pass Parliament signaling more super oversight
The first bill implementing recommendations from Hayne’s banking royal commission has passed through the Parliament. ...Read more

Superannuation
Fears half of super system may be exempt from performance test
While the Your Future, Your Super measure has been a topic of debate for weeks over its ability to create possibly unintended consequences, new questions have emerged about the measure’s ability to ...Read more

Superannuation
AustralianSuper tops $200bn in assets, aims for mega fund title
AustalianSuper has become the country’s first fund to top $200 billion in assets despite the harsh economic conditions which saw Australia dive into its first recession in 30 years. ...Read more