The 2020 Budget – what it means for your retirement
While tax cuts and COVID-19 support dominated the headlines, the Federal Budget also introduced changes affecting superannuation and investments. Here’s what you might have missed – and how it could impact your retirement savings.
Almost every Federal Budget provides new changes for super, and 2020-21 is no exception. The latest changes aim to remove unnecessary fees and multiple super funds – and help Australians choose the super fund that’s best for them.
Other changes to make super funds more accountable for their performances have also been introduced. Here are some of the key changes that you should know about:
Currently, if you change jobs and don’t nominate a super fund, your employer can pay your Super Guarantee (SG) into their default fund. But from 1 July 2021 onwards, this will change. If you don’t nominate a fund, your employer must find your existing super fund details online from the Australian Tax Office (ATO) and contribute that fund. So, whenever you move jobs, your existing account will come with you. The new legislation, an implementation of the Hayne Royal Commission Recommendation 3.5, is all about giving you a healthier super balance. That’s because you won’t be paying fees across multiple funds, or paying insurance premiums from more than one account. It will also save you the time and paperwork that goes into rolling over your old super into a new account.
Choosing, comparing and testing
MySuper From 1 July 2021, the ATO will use digital tools to help make it easier for you to choose a super fund. Its interactive YourSuper comparison tool shows you how different MySuper products rank by fees and investment returns. Of course, past performance doesn’t always indicate a fund’s future performance, and MySuper options aren’t appropriate for everyone, so it’s a good idea to seek advice if you want help choosing a super fund and strategy that’s right for you.
If you’ve changed jobs over the years, you may have collected a few super funds – including some you’ve forgotten about. The YourSuper comparison tool will let you quickly check how many super accounts you have – and consolidate them easily so you don’t double up on fees and insurance premiums.
From the same date, financial services regulator Australian Prudential Regulation Authority (APRA) will begin its annual benchmarking of MySuper products – comparing funds’ net investment performances. If funds underperform, they’ll need to let their members know by 1 October in the same year. They’ll also need to share information about the ATO’s YourSuper comparison tool with their members, to let them compare their fund’s performance with other funds.
If a fund fails two annual performance tests in a row, it won’t be able to accept new members until it’s no longer underperforming. Other super products will also be subject to the same tests as the MySuper funds by mid-2022.
Super fund trustees – the people who make decisions about your retirement money on your behalf – will also need to show they’re acting in their members’ best financial interests and provide members with information about how their money has been managed and spent, before each annual member meeting.
Postponing a few changes
Back in 2018, the Australian Government made a proposal to change the maximum number of members allowed in an SMSF from four to six. The change was supposed to start from 1 July 2019. But the increase has been postponed until the related legislation is passed by both Houses of Parliament.
During the same budget of 2018-19, the government proposed to remove the capital gains tax discount (CGT) at the trust level for Managed Investment Trusts (MITs). These are types of trusts that allow people to collectively invest in assets like shares, property or fixed income.
This proposed change aims to stop people who aren’t entitled to these discounts personally from benefiting from a discount that only applies to a trust. Again, this change won’t go through until just before the related legislation becomes law.
Finally, the government is also deferring the retirement income framework legislation. Known as the Retirement Income Covenant, its purpose is to set up a mutual obligation where super trustees need to create a retirement income strategy for their members. The Retirement Income Covenant was meant to take effect on 1 July 2020, but has been moved to 1 July 2022 so more consultation can happen and new laws can be drafted.
Getting retirement ready
No matter where you are in your financial journey it’s never too early (or too late) to plan for your retirement. We can help you maximise your retirement income, with strategies to build your super and invest for the future.
Book a free initial consultation with Wealth Adviser Craig Holly. You can book a time with Craig here, or give Verve Group a call on (08) 8120 4877.