Sharp falls in global sharemarkets during the June quarter have resulted in average super fund returns dipping under the magical double figure mark, according to the latest data from SuperRatings.

Despite predictions that super fund returns for 2009-10 could be as high as 15%, weakness on Australian and overseas equities markets saw the average return from balanced super funds (the super fund option used by most Australians) slip to 9.79%.

But it wasn’t just weak sharemarkets that took a toll – super fund feeds also played their part too, according to SuperRatings chief Jeff Bresnahan. He says the median return from balanced funds was actually 11%, but the impact of feeds forces the actual result below 10%.

Still, the 2009-10 returns are a big improvement on the loss of 12.7% seen in 2008-09 and the loss of 6.4% experienced in 2007-08.
“Whilst not looking great on paper, in a relative sense balanced options have achieved what they set out to do, namely to prevent significant losses through diversification,” Bresnahan says.

“Over the last decade…balanced options have gained 4.5% per annum. So, despite not being handsomely rewarded for risk in relation to cash and inflation over the same period, balanced options have at least kept ahead of both of these investments and will continue to do so over the long term.”

However, SuperRatings’ data does demonstrate the impact that the GFC has had on longer-term super fund returns.

Rolling three-year returns have now dipped to 3.52% per annum, and the rolling 10-year return has now fallen to 4.5%.

Over a 20 year period, the rolling return rate increases to a much more respectable 7.2% per annum.

“That’s well ahead of the prevailing inflation and cash rates over the same period,” Bresnahan says.

The common thread is that all the top performers are industry funds, which are operated on an not-for profit basis and were traditionally attached to union bodies.
Bresnahan says the strong performance of the industry funds is down to two factors.

“The fact is they do charge lower fees, year in year out and they have also utilised unlisted assets to a much higher degree than retail funds.”

The common thread is that all the top performers are industry funds, which are operated on an not-for profit basis and were traditionally attached to union bodies.

Bresnahan says the strong performance of the industry funds is down to two factors.

“The fact is they do charge lower fees, year in year out and they have also utilised unlisted assets to a much higher degree than retail funds.”  (Reprint from SmartCompany.com.au

THE PREVIOUS DEBATES and media frenzy on the Resource Super Profits Tax (RSPT) had obscured analysis on the proposed superannuation changes announced following the release of the Government’s response to the Henry Review in May this year.

There were three (3) proposals presented:
a)    Increase in the Superannuation Guarantee (SG) from 9 to 12 per cent, appears to benefit everyone;
b)    Rebate on contributions tax for those on incomes up to $37,000 – aimed at addressing the lack of tax concessions on superannuation contributions for low income members; and
c)    Extension of the $50,000 concessional contributions limit for those 50 or over with the superannuation balances under $500,000, is aimed  at those with low to moderate balances approaching retirement.

The Increase in SG
The increase in the SG is the Government’s major announcement. Notably, it was not the preferred option for increasing superannuation savings in the Henry Report. The panel favoured a system where contributions would be tax-free in the fund but taxable, with concessions, at the individual level.
If your clients are already salary sacrificing, this change may not mean much. If your clients are already contributing to their concessional limits, it will have no effect other than gradually reducing their salary sacrifice contributions to keep within the concessional contribution limit, keeping in mind that with indexation this will rise over time.

The effect on wages as employer’s total employee costs rise, albeit very gradually, will depend on the wage market at the time. We note that in so much as the increase in the SG is a substitute for wage increases, it reduces the Government’s tax revenues.

Paradoxically, older employees will proportionally have the greatest increase in SG contributions, with the SG being extended from 70 to 75 years of age from 1 July, 2013. However, this will have only a minor effect on balances, as it will represent only five years of SG contributions.
Overall, the effect the increased SG will have on superannuation balances will be greatest for younger accumulators with longer working lives.

The $500 rebate
The rebate of up to $500 on contributions tax for members earning less than $37,000 from 1 July, 2012, offsets the tax on the 9 per cent SG contribution on incomes up to this amount. It’s unclear if the rebate will apply only to SG or all concessional contributions, and it’s uncertain if the rebate will increase along with the announced increase in the SG contribution rate.
Graph 2 shows the effect on a member’s balance over 10 years assuming the member has an opening super balance of $30,000, they earn an income of $37,000 on which they receive the 9 per cent SG and their fund earns 6.8 per cent net of fees and tax.

In the example the rebate increases the balance from just over $99,300 to $106,600 by year 10.
While the move to reduce tax on concessional superannuation contributions for those on the 15 per cent marginal tax rate is welcome, it will have only a marginal effect on superannuation balances.

Extension of the $50,000 contribution limit
The transitional concessional contribution limit of $50,000 for those 50 or over will end on 30 June, 2012. The proposal that it be extended indefinitely from 1 July, 2012, but only to super fund members with balances of less than $500,000, has caused much speculation.

For instance, we do not know if the $500,000 balance will include amounts in pension phase, although unless it does there is an obvious strategy to circumvent the limit. Nor do we know if contributions split with spouses to keep balances below $500,000 will be assessed in the threshold. The Government has said that it will consult with the industry on the implementation details of the measure.

If the member can salary sacrifice more than $25,000 and has a small superannuation balance, the benefit of the proposed change is clear: up to $50,000 can be salary sacrificed and their superannuation benefit will increase to a greater amount than under the existing post 30 June, 2012, concessional limit of $25,000.

However, not everyone can afford to reduce their after-tax income. A popular strategy to maintain after-tax income and increase superannuation savings has been to combine a transition to retirement pension and a salary sacrifice arrangement. Does the extension of the $50,000 concessional limit increase the benefits of this strategy?

Graph 3 looks at the effect of the proposed change on a member aged 55 in 2010/11 with pre-tax income of $80,000 who wishes to maintain his after-tax income of $61,250. He has a moderate opening balance of $250,000, all taxable component, and his fund earns 6.5 per cent.

The graph shows the total balance in his superannuation accounts (pension and accumulation) up to age 65 under three assumptions: relying solely on SG contributions, combining salary sacrifice with transition to retirement under the existing limit ($50,000 until 30 June, 2012, and the $25,000 per annum) and the new proposed limit of $50,000 up to a balance of $500,000. In all three scenarios his after-tax income remains at $61,250 and he receives the proposed increased SG contributions.

Our analysis shows that the implementation of the transition to retirement strategy (TTR) combined with salary sacrifice limited at $25,000, rather than relying on SG contributions, increases the balance at retirement from $515,000 to $568,000 at age 65.

The extension of the $50,000 cap leads to a higher balance than the TTR and salary sacrifice strategy under the existing limits. In our example, the member contributes more than $25,000 in seven of the years after 1 July, 2012, and is only restricted by the $500,000 limit in the last year. Their balance at retirement is nearly $587,000 – an increase of $21,000 over the TTR and salary sacrifice strategy under the existing limits.

What is the effect of the proposed change on members with higher starting balances who wish to maintain their after-tax income? For these members the proposed change has almost no benefit because even though they have the ability to draw a higher maximum TTR pension and fund contributions in excess of $25,000, they will quickly exceed the $500,000 threshold and have to revert to contributing $25,000. Many in this category will, in any case, exceed the $500,000 threshold before 30 June, 2012.

Similarly, the proposed change has little benefit for those members with low balances who wish to maintain their after-tax income. Members in this situation are unable to contribute over $25,000, even when drawing a maximum TTR pension, and maintain their income.

Conclusion
The changes proposed following the release of the Henry Report and in the 2010 Federal Budget provide some benefit to those saving for retirement. The increase in the SG provides significant benefits for those who cannot make extra concessional contributions above the current SG.
The benefits to low-income workers from the $500 rebate are limited, as they only apply to small concessional contributions.

The extension of the $50,000 concessional limit for those 50 or over has benefits for those with low balances who can afford to utilise the limit by reducing their after-tax income. However, it has limited benefit for those who wish to maintain their after-tax income by combining salary sacrifice arrangements and a transition to retirement strategy.  (With reprints from SmartCompany.com.au)

Voluntary superannuation payments of low-income workers are due on June 30, and workers need to keep catch this deadline to gain a government top-up to their retirement savings for the 2009/10 financial year according to the non-profit super sector industry body.

According to Chief Executive Fiona Reynolds of the Australian Institute of Superannuation Trustees (AIST), low-income workers who qualified for the superannuation co-contribution scheme should make a voluntary payment before June 30, Wednesday.  “Time is running out for people to benefit from the co-contribution, and even more people are eligible this year because of the higher income thresholds,” Ms. Reynolds added.

The federal government will shoulder half of the voluntary super contributions up to a maximum of $1000 for workers earning below $31,920 for financial year 2009/10.  The top-up will receive a reduced co-contribution of 3.33 cents for every dollar earned above $31,920 and up to $61,920.

Reynolds said the top-up is one of the biggest help the government has offered to low wage earners to increase their retirement savings.  “When it comes to investing for the future, this has got to be one of the best deals around,” Reynolds added.

AIST research has shown that the maximum $1,000 contribution could boost their retirement nest-egg by $85,000.

Get help on Superannuation here.

There are a number of important advantages for an SMSF trustee that successfully carries out a borrowing arrangement to manage funds and/or acquire shares, residential property, or commercial property:

1. It maximises the wealth effect in the SMSF in times when assets of the fund are rising.  However, care should be taken in falling markets – although there is the benefit of having no margin calls due to the non-recourse nature of the loan.
2. The borrowing can be for a short period or up to 20+ years (if related party financing is used) allowing it to be structured to the underlying circumstances of the fund members.
3. Members and related businesses can act as lenders provided that all lending is at arm’s length
4. It increases the flow of non-contribution style funds into the SMSF particularly where the members of the fund have used up their contributions’ capacity.  Care must be had to ensure that there is a genuine borrowing and not a contribution arrangement, otherwise, the Commissioner may deem the borrowing to be a non-concessional contribution.
5. Future income and capital gains on underlying assets are concessionally taxed in an SMSF and may even be tax-free where the assets are held for pension purposes.  read more

• From 1 July onwards, individuals can only pay a maximum of $25,000 per annum tax deductible contributions to superannuation if aged under 50 years of age and $50,000 per annum if aged above 50 years of age, but only up to 30th June 2012.
• If aged under 65 years of age, anyone can contribute $150,000 per annum to superannuation without claiming a tax deduction for the amount or bring 3 years worth of contributions forward and contribute undeducted $450,000.
• Any contributions that exceed these amounts will be taxed ultimately at 46.5% in the fund.

AIST chief executive Fiona Reynolds said super-fund holders should merge their accounts so they could pay just one set of fees.
AIST chief executive Fiona Reynolds said super-fund holders should merge their accounts so they could pay just one set of fees.
Last week, Superannuation Minister Nick Sherry asked superannuation funds to lower their management fees from an average 1.25 per cent to under 1 per cent.

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http://www.news.com.au/business/money/story/0,25479,25020499-5013954,00.html?from=public_rss

Self Managed Super Funds (SMSF) offer many advantages, including the ability to access direct investments, including shares, property, antiques, art and other assets of varying classes and risk.  The size of the fund ensures the trustee can make quick decisions regarding market exposure and can even begin to access such investments as government guaranteed bank investments. 

An SMSF can further be geared to access direct markets – that is investors can borrow money utilising their superannuation and increase investment exposure in the share market and property markets.  Ultimately an SMSF provides many more opportunities that are not available through managed investments and can be accessed and utilised by individuals from all “walks of life” whether an employee or an employer.

Superannuation is tax effective, being taxed at 15% or 0% once a pension starts.

Superannuation is protected from creditors.

Core business area of BB Whithouse accountant is the establishment and annual compliance of Self Managed Superannuation.

Our work area includes:

• Setup of super fund
• Investment Strategy Reports
• Complying and Allocated Self-Managed Pension Funds
• super fund, superannuation audit