It’s never too early to start planning your future aged care needs. The earlier you start, the more time you have to prepare to live out your golden years with peace of mind knowing you will be stable and supported.
Planning for your aged care usually involves organising your legal and financial affairs and establishing what care options you have available within your area of retirement.
Aged care financial planning involves making future health, housing and legal decisions.
Some of the most important steps when planning for life in aged care include making sure:
You receive the assistance you require if you’re unable to take care of yourself.
Your family understands how you want to be cared for in the case of a severe illness or disability.
Your Will specifies what should be done with your estate and assets.
It may be important for you to establish preparations ahead of time to protect your interests if you become extremely ill or wounded and cannot make decisions about your care.
Talking to your family about what you want and need during your later years of life is important. When you have this discussion, it’s beneficial to talk about what aged care services you may need and how that fits within your budget, needs and capabilities.
“An aged care financial planner can help you financially plan for your aged care strategy within your budget.“
Here are 4 essential things to consider when it comes to planning your future aged care needs:
1. Consider Assessing Your Current Financial Situation
When you’re in retirement and considering aged care options, it’s an excellent idea to organise your finances.
Many aged care options are more expensive than you would expect meaning it’s earlier to start saving or planning for payment solutions earlier rather than later.
To ensure your finances are on track to meeting your aged care needs and assist you in handling your finances, it may be worthwhile to speak to a personal financial adviser to ensure that everything is in check. This way, managing your finances may become easier, and with that, you can manage the finances required for aged care.
It’s important to ensure you have a good grasp of the expected aged care expenses and have an effective roadmap in place that can help you navigate the expected expenses as you reach your later years in retirement.
2. Finalise Your Personal Matters
You might want to put other personal affairs to rest as well. You may choose to visit a particular location with friends, make specific wishes for your funeral or even plan that one last trip to Italy.
Regardless of your preferences, you may want to discuss these desires with your family and friends. From there, you may be able to make them happen if you work together.
3. Appoint Someone to Make Decisions For You
Another approach to plan for your future is to select someone to make choices for you if you become unable to do so yourself. This is also part of the estate planning process that we help our clients with.
There are many types of legal appointments that confer decision-making authority:
Medical Power of Attorney – capable of managing your medical requirements
Power of Attorney – can handle your finances
Enduring Power of Guardianship – can determine personal, lifestyle and treatment decisions on your behalf should you ever become incapable of making such decisions yourself.
4. Think About What Aged Care Option Suits You
There are various care assistance and housing options available today.
It’s important for you to know that the choice will solely depend on your preferences, health, age, financial health, and the level of care you may require.
Home Care: This service allows you to remain in your homes and maintain independence, while also assisting you with keeping up with the essential daily home chores.
Retirement Villages or Assisted Living Communities: These services provide living arrangements that meet independent and dependent individuals.
Aged Care Facilities: If you can’t live independently, or want to take the pressure of yourself, aged care may be an option worth exploring.
An excellent way to establish what your aged care options are is through the Aged Care Assessment Service (ACAS). You may want to consider booking an aged care assessment as soon as possible, as there could be possible waitlists for certain services or eligibility requirements you may have to meet.
“Booking an aged care assessment can also help you decide how much home care you may need in the future and help determine if an income-tested fee would apply to you.“
Early preparation and solid advice on advanced aged care planning can help you and your family minimise stress as you age. Speak with a financial adviser for additional information.
Working with a financial planner can provide you with the most up-to-date information regarding aged care in Australia, that is relevant to your financial situation.
Work with a Sydney Aged Care Financial Planning Specialist
Our service is founded on the desire to improve the lives of our clients with strategic planning, wealth creation and ultimately – wealth success, leaving nothing to chance.
Please take the next step and secure your financial future bybooking a 15-minute call with us today!
Your financial goals, whether they’re short-term or long-term, are considered the backbone of a sound financial plan. Your financial goals should align with your values and objectives in life – as well as your life stage.
While it’s great to be financially stable, what brings even more joy is being able to live the life you want without having to stress about money.
Are you looking to set smart, achievable financial goals for the new year?
Here’s what you need to know when setting financial goals.
Three Types of Financial Goals
Short-term Financial Goals
Short-term goals give us a glimpse of where we want to be in the near future. They should be realistic and attached to a timeline.
Short-term financial goals may include:
Setting a budget and sticking to it
Paying off small debts like credit cards or
Save an emergency fund
Saving a specific amount for a purpose (holiday, new car, renovations etc.)
Mid-term Financial Goals
These goals create a bridge between your short-term and long-term goals. These goals take time, effort and patience to map out.
Some examples of mid-term financial goals include:
Buy a home or investment property
Paying off larger debts
Secure life insurance cover
Start investing
Long-term Financial Goals
These are the long-game goals you want to achieve – likely before you retire. Long-term goals are designed to help you meet your needs and wants in the future.
Depending on your financial position, you may achieve some of these early in life. If that is your situation, you can take the time and work with a financial planner to secure and protect your wealth.
Long-term goals include:
Pay off your mortgage
Creating a financial plan
Save for retirement and perfect your retirement plan
Boost your superannuation
Secure your investment portfolio
Benefits of Setting Financial Goals
We all want to achieve our dream lifestyle for our future – whether that involves buying a dream home or travelling the world. You’ll need to set financial goals if you want to be financially successful.
With a clear image of what you want in the future, you’ll be able to take the right steps towards your financial goals. It will also give you a clear picture of what you need and should do to achieve it.
Ready to Set Goals for 2022?
Work with our financial planners in Sydney or Hornsby
We build personalised financial plans to help individuals, families and retirees achieve all their financial and lifestyle goals.
We’ll help you determine if you’re on the right path and give recommendations on the next steps to your success. Contact us todayand take that first step towards your financial goals!
Having the means to support you and your family without financial burdens in life is perhaps one of the greatest expressions of freedom you can think of. While it may prove to be quite difficult at first, it’s not entirely impossible to achieve.
Since most things in life take time to build and perfect, it may take some time to accomplish. It’s important to start planning and mapping out your financial goals as early as you can.
Here’s a four-step guide that may help you achieve complete financial independence:
1. Address Anything Holding You Back from Achieving Financial Freedom
Supporting yourself isn’t always easy. In fact, most tend to struggle and stumble at first. Before you work on achieving your goals, it’s best to put yourself in the best position possible.
This means working on your bad financial habits and trying to pay off as much debt as possible (car loans, credit card debt, student loan even getting ahead on your mortgage!)
The goal is to get through this stage as quickly as you can. This means you’re in a good foundational position to better your finances sooner.
2. Work on the Small, Regular Steps That Move the Needle
After working on improving your financial position as much as possible, now is the time to plan the regular things you can do to achieve your financial independence.
Set your financial goals and reward yourself for achieving important milestones.
The small steps will be unique to your situation. Consider:
Saving a regular amount each week
Use a certain amount to pay down debts weekly
Look at where you can cut down on small expenses (bills or groceries)
This phase of your financial journey means you may be ready to start taking more exciting steps that will take you closer to financial independence.
3. Look at Ways to Grow Your Wealth
Once you’ve achieved financial stability, you now have better control over your agency, putting you in a more attractive position financially.
You’re at the stage where you can choose the things that grow your money. Now should be the time to start focusing on a long-term financial growth strategy, which may include building an investment portfolio.
You finally have the choice toinvest your money in something meaningful and beneficial for you. It’s at this stage that you can choose whatever investment you like without being overly concerned about your everyday financial expenses.
4. Find Ways You Can Protect Your Wealth and Your Future
Growing money is, understandably, a huge priority for most people. But many people forget to take the next important step to protect their wealth.
Protecting your wealth – through the appropriate insurance policies – can give you true peace of mind that you have reached financial independence.
With a wealth protection plan, you can:
Protect your income and your family’s future
Maintain your desired lifestyle without financial stress
Reduce unexpected costs in the future
Feel confident in your financial stability
Achieve Financial Independence with a Financial Planner in Sydney
Achieving financial independence requires patience, discipline and determination to protect your wealth and reach your financial goals. These stages provide a great guide to get you started on your path to achieving financial freedom.
Hyland Financial Planning is here to help you become secure and prepared financially for what the future holds.
We know how much your life can change in a blink of an eye. That’s why we offer financial planning – including estate planning, cash management, retirement planning, and investment advice – to help you achieve financial independence.
Estate planning should be viewed as an integral part of your overall financial plan, as it can provide you with peace of mind knowing you are leaving your legacy to the ones who matter most to you.
While it can be uncomfortable to discuss matters surrounding end-of-life subjects such as death, wills and estates, these conversations are important to be had as early as possible with your loved ones.
What is Estate Planning?
Estate planning involves preparing all your assets, properties, and belongings so you can put in place the appropriate strategies of how to handle them right after you have passed. Basically, it states your last wishes and the direction by which all your belongings and financial assets would be dealt with, either passing them on to your loved ones or providing them to another relevant party or entity.
Estate planning can help eliminate some of the potential legal stresses for your family members as they will know exactly what you want in the event of your passing.
Many Australians have a will, but so many would also benefit from a comprehensive estate plan.
A well-prepared and executed estate plan can ensure the right assets go to the right people at the right time, in an efficient and tax-effective manner.
If you want to get this process of preparation right, you may need to consider a few important things first.
Here are three tips and recommendations you can use to help get you started on your estate planning.
1. Make a Complete List of All Your Assets
This may be your first step to your estate plan since you will not be able to initiate an estate plan without indicating all of your valuables. Having an incomplete list can cause confusion for the ones handling your assets and possibly cause conflict amongst your recipients.
By listing down your property, your financials, and any other valuable assets, you can accurately establish and organise your asset distribution adequately.
If you need support in understanding what you can list, it may be worthwhile seeking financial advice and help you prepare your estate plan.
2. Choose an Executor You Can Trust
An executor is nominated as your trustee and will carry out your final wishes and estate plan right after you pass away. This person must be legitimate, validated, and well-versed within the technicalities of estate planning.
Understandably, it can be difficult trying to find a trustworthy person to do this crucial task once you’re gone. Nevertheless, it’s a title you need to appoint to protect your best interests.
A good rule of thumb is to go for a person who has nothing to gain from your will and exercises pure commitment and honest service to your wishes.
3. Consider a Testamentary Trust
A testamentary trust is something that you can choose to implement within your will. Its goal is to safeguard all of your assets and activates the distribution right after you pass.
Importantly, this allows you to incorporate certain conditions on the distribution of your assets and how they are to be specifically managed by your nominated beneficiaries.
The benefits of establishing a testamentary trust include:
Protection From Bankruptcy – Your appointed trustee can protect your assets from your beneficiary if in the case they went bankrupt within your passing. This can be for the purpose of ensuring your assets don’t become a part of your beneficiary’s estate for bankruptcy.
Protection From Financial Implications of a Divorce or Separation – Under the current Australian law, your Trust may not be subject to a Family Court Order in the event of marriage or relationship breakdown.
Taxation Advantages – Taxable income generated by your Trust can be allocated among the beneficiaries of your Trust in a tax-effective manner.
Getting your estate plan right can have some difficulties, however, they can be managed effectively with the right support. By listing your assets, choosing a trusted executor, and establishing a testamentary trust, you have more potential of drafting an estate plan free from misinterpretations and problems.
Save your loved ones from stress and Heartache with Estate Planning from Hyland Financial Planning
Leaving something behind for your loved ones by establishing an estate plan as soon as possible. Your loved ones would be more than happy to commemorate your kindness, even after you’re gone.
If you are looking for a financial adviser to support you with estate planning in Sydney, look no further than Hyland Financial Planning. We are a Sydney financial planning company specialising in strategic financial advice, wealth creation, and retirement planning.
Contact us today to discuss your estate planning and financial options for the future.
You may start out in life handling your money by yourself and get to a point where you think you could benefit from an expert.
You may find as your life, career and goals begin to expand, you begin to wonder:
Am I making all the right financial moves? Do I know enough about making smart investing choices that can help me meet my financial goals?
Often it can take a stressful financial situation to make someone seek help and guidance from a professional. Worrying over certain financial decisions can undoubtedly take its toll, especially when it concerns long-term impacts.
Making these decisions without any plan or guidance is incredibly risky since it can set you up for failure, which is why it can be crucial to seek financial advice from an independent financial adviser.
A financial consultant can help take you through the complete picture of your financial situation and the options you have. They can help you choose the most advantageous decision that supports your short-term and long-term goals.
Here are four reasons to consider seeking financial planning services:
1. Financial Advice Can Help You Secure Your Financial Future
While it’s perfectly acceptable to aim for a comfortable (even slightly luxurious) so lifestyle, it often comes with a lot of challenges to reach this goal.
You can find a good balance between indulging in leisurely experiences and working hard to pay for the life you want.
A financial consultant may be able to comprehensively look at your financial goals and build a roadmap to maximising your life and making the most out of it according to your standards.
Whether that means early retirement planning or choosing to work a bit longer and go on holiday every year, a financial advisor can help you make smart, balanced decisions that allow you to live a fulfilling life.
2. Support You in Protecting What Matters Most
Most people work so hard to build their wealth and earn money that they forget to make the time to protect their hard-earned wealth. Protection is just as important as owning which is why so many of us insure our cars, our health and our home. But what about our life and our earning capacity?
You may be someone who has resisted the need to purchase insurance at some point. Everyone understands the importance of personal insurance, but it takes the extra step to come up with a personalised wealth protection strategy.
Having the right insurance policy can be an essential part of a sound financial plan, giving you peace of mind on the things that are important to you.
If you apply for your life insurance through a financial adviser, data shows that you are around 50% more likely to have your claim approved1
Many financial advisers have seen the tragic consequences of not being insured, especially when someone can no longer work due to illness, injury, or an accident. As you know, you can’t predict the future and circumstances can inevitably change; not having insurance can make unexpected situations more stressful.
Underinsurance is a prevalent problem in Australia-as only half of the population hold life insurance.1
It can be crucial to seek financial advice to review your insurance needs and ensure you have the appropriate protection.
3. Help You Make Smart Financial Decisions During a Crisis
As demonstrated by the COVID-19 pandemic, a crisis can quickly upend your financial situation. Having a solid financial plan can provide you with the tools you need to navigate certain difficult financial situations, helping you make the right decisions that will put you back on track.
Without any guidance or the help of a financial adviser, you are more likely to make panicked decisions that can backfire.
It’s easy to feel like all hope is lost when disaster strikes. However, working closely with a financial adviser—whether before, during, or after the crisis—can help you get back on your feet, understand the impact of various decisions, and choose wisely. You can be assured you are making logical financial decisions not impacted by emotional or stress that give you financial freedom.
4. Help You Reduce Your Financial Stresses
Whether you’re well-off or struggling, everyone experiences some form of financial worry at some point in their lives. Financial stress can have devastating effects on your physical and emotional health.
The great news is that a sound financial plan can aim to minimise the stress you may be experiencing. While it can’t eliminate worries, it can significantly reduce the number of concerns you have, as it will guide you towards choosing the most appropriate option for your financial situation.
Having a financial plan can save you from getting stuck in tricky situations that will plunge you further into debt. By working with a financial adviser, you’ll get closer to reaching your life goals and live a life you’re proud to lead.
Looking for a Financial Planner in Sydney?
Hyland Financial Planning strives to improve the lives of our clients by providingfinancial advice in Hornsby and Sydney. Through strategic planning, wealth creation advice, and various financial planning services, we can help you develop a plan to suit your needs.
The right financial adviser should provide you with the tools to protect and maximise your hard-earned money to help secure you and your family’s financial future. This entails taking into consideration your personal financial needs and goals.
However, seeking the right financial adviser who can help you achieve your dream financial future is no easy task. There are so many financial advisers in Australia; how do you know who the right one for you is?
Did you know?
Almost half of Australian adults have unmet financial advice needs!1
A financial planner should best provide you with the appropriate strategies to help you feel confident about managing your money and help set you on a path to achieving your financial goals.
When it comes to managing your money, it can be difficult to do so alone — a skilled expert can help you with your financial situation and secure your finances.
To find the best financial adviser for you, remember to:
1. Determine What You Need From a Financial Adviser
The first question to ask yourself is: Why are you looking for a financial adviser in the first place?
Of course, it goes without saying that you need the expertise of a financial adviser to achieve financial stability and freedom, but it’s important to consider the specifics of what you need.
Depending on your age, what stage of life you are in, what you wish to achieve, and the amount of money you have, what you need from a financial adviser will differ from other people. For example, those reaching retirement age may seek aged care advice, while people who’ve secured their first job may be looking into life insurance financial planning.
When looking for a financial adviser, it’s important to reach out to an experienced professional in the area of advice you are seeking. This way, you can feel assured they will be able to guide you and provide you with the best advice to support you in achieving your financial goals.
At Hyland Financial Planning, we specialise in:
Retirement Planning and Superannuation Advice
Building Your Wealth and Investment Advice
Protecting Your Wealth and Life Insurance Advice
Estate Planning and Aged Care Financial Planning
Cash Management, Budgeting and Debt Management
2. Choose the Type of Financial Advice
Consulting a financial adviser won’t necessarily involve the professional telling you strictly what you must do. If you seek a financial adviser for general financial advice they may or may not account for your situation or goals.
Personal financial advice is ideal if you want to receive financial advice tailored to your financial situation and designed for your best interests. This type of financial advice may include:
Single Issue Advice: this allows you access to financial advice specific to your current needs for a one-off situation. For example, if you are going through a divorce, you may seek financial advice for one-off financial guidance.
Comprehensive Financial Advice: This type of financial advice is tailored to your circumstances, which aims to help you secure your financial future.
Ongoing Advice: Change is inevitable; your circumstances will often change eventually, which means the financial advice you need should adapt, too. Ongoing advice ensures that you’ll be able to stay on top of money matters, ensuring you’re financially secured. At Hyland Financial Planning, we specialise in ongoing financial advice to help our clients
3. Find a Qualified, Certified Financial Adviser
Financial advisers come in all shapes and sizes and like many professions, some are more qualified than others.
You can check whether a financial adviser is registered with the Australian Securities and Investments Commission (ASIC) and has a current license to practice. ASIC regulates Australian financial planning companies to make sure they are operating fairly and honestly.
If you select an adviser that is registered with ASIC, you can feel confident in knowing your money is being carefully regulated and protected.
Check the certifications and qualifications of an advice business or professional on the Financial Adviser Register.
Choosing the Right Financial Adviser in Sydney
With the right financial adviser, you can learn how to manage your money, where to invest it, and reach your financial goals. As long as you work with the right financial adviser, you can live a stress-free, financially secure life!
Our financial advice team at Hyland Financial Planning may just be who you need! We will work closely with you to develop a plan to suit your needs and achieve your goals.
As the new financial year gets underway, there are some big changes to superannuation that could add up to a welcome lift in your retirement savings.
Some changes, like the rise in the Superannuation Guarantee (SG), will happen automatically so you won’t need to lift a finger. Others, like higher contribution caps, may require some planning to get the full benefit.
Whether you are planning for retirement or comfortably retired, it pays to know what’s available to you.
Here’s a summary of the changes starting from 1 July 2021.
Increase in the Super Guarantee
If you are an employee, the amount your employer contributes to your super fund has just increased to 10 per cent of your pre-tax ordinary time earnings, up from 9.5 per cent. For higher income earners, employers are not required to pay the SG on amounts you earn above $58,920 per quarter (up from $57,090 in 2020-21).
Say you earn $100,000 a year before tax. In the 2021-22 financial year your employer is required to contribute $10,000 into your super account, up from $9,500 last financial year. For younger members especially, that could add up to a substantial increase in your retirement savings once time and compound earnings weave their magic.
The SG rate is scheduled to rise again to 10.5 per cent on 1 July 2022 and gradually increase until it reaches 12% on 1 July 2025.
Higher contributions caps
The annual limits on the amount you can contribute to super have also been lifted, for the first time in four years.
The concessional (before tax) contributions cap has increased from $25,000 a year to $27,500. These contributions include SG payments from your employer as well as any salary sacrifice arrangements you have in place and personal contributions you claim a tax deduction for.
At the same time, the cap on non-concessional (after tax) contributions has gone up from $100,000 to $110,000. This means the amount you can contribute under a bring-forward arrangement has also increased, provided you are eligible.
Under the bring-forward rule, you can put up to three years’ non-concessional contributions into your super in a single financial year. So this year, if eligible, you could potentially contribute up to $330,000 this way (3 x $110,000), up from $300,000 previously. This is a useful strategy if you receive a windfall and want to use some of it to boost your retirement savings.
More generous Total Super Balance and Transfer Balance Cap
Super remains the most tax-efficient savings vehicle in the land, but there are limits to how much you can squirrel away in super for your retirement. These limits, however, have just become a little more generous.
The Total Super Balance (TSB) threshold which determines whether you can make non-concessional (after-tax) contributions in a financial year is assessed at 30 June of the previous financial year. The TSB at which no non-concessional contributions can be made this financial year will increase to $1.7 million from $1.6 million.
Just to confuse matters, the same limit applies to the amount you can transfer from your accumulation account into a retirement phase super pension. This is known as the Transfer Balance Cap (TBC), and it has also just increased to $1.7 million from $1.6 million.
If you retired and started a super pension before July 1 this year, your TBC may be less than $1.7 million and you may not be able to take full advantage of the increased TBC. The rules are complex, so get in touch if you would like to discuss your situation.
Reduction in minimum pension drawdowns extended
In response to record low interest rates and volatile investment markets, the government has extended the temporary 50 per cent reduction in minimum pension drawdowns until 30 June 2022.
Retirees with certain super pensions and annuities are required to withdraw a minimum percentage of their account balance each year. Due to the impact of the pandemic on retiree finances, the minimum withdrawal amounts were also halved for the 2019-20 and 2020-21 financial years.
Source: ATO
Next financial year there are more changes…
Next financial year is also shaping up as a big one for super, with most of the changes announced in the May Federal Budget expected to start on 1 July 2022.
The Budget included proposals to:
repeal the work test for people aged 67 to 74 who want to contribute to super
reduce the minimum age for making a downsizer contribution (using sale proceeds from your family home) from 65 to 60
abolish the $450 per month income limit for receiving the Super Guarantee
expand the First Home Super Saver Scheme
provide a two-year window to commute legacy income streams
allow lump sum withdrawals from the Pension Loans Scheme
relax SMSF residency requirements.
Note: *All these measures still need to be passed by parliament and be legislated.
Whatever your situation, if you would like to discuss how to make the most of the new rules, please get in touch.
The Federal Government has handed down its Budget for the 2021-22 financial year. Compared with last year’s record deficit of $213.7 billion, the underlying cash deficit is projected to decrease to $161 billion as the economy continues on the path to recovery from Coronavirus.
Some of the key Budget announcements that should be of particular interest to you and your clients include:
the removal of the work test for non-concessional and salary sacrifice contributions
a reduction in the minimum age requirement for downsizer contributions
an increase in the amount of super savings available to first home buyers
additional investment into aged care following a Royal Commission into the quality and safety of the system.
It’s important to note that the legislated increases to superannuation guarantee were not amended in the Budget. Therefore, rate of superannuation guarantee will increase to 10% from 1 July 2021, as previously legislated.
In addition, the Government did not announce an extension of the halving of the account based pension minimums. As a result, the standard minimum drawdown requirements will apply from 1 July 2021.
Also, keep in mind that the announcements made in the Budget remain proposals at this stage. All of the proposals mentioned must be passed by Parliament before they become law.
Superannuation
Repealing the work test for non-concessional contributions and salary sacrifice contributions for people aged 67 to 74
Expected to be 1 July 2022
The Government has announced it will allow individuals aged 67 to 74 to make or receive non-concessional (including under the bring-forward rule) or salary sacrifice superannuation contributions without meeting the work test, subject to existing contribution caps.
However, individuals aged 67 to 74 years wanting to make personal deductible contributions will still have to meet the existing work test.
This measure is proposed to have effect from the start of the first financial year after the enabling legislation receives Royal Assent. The Government stated it expects this to occur prior to 1 July 2022. 4
Hyland Financial Planning comment
Removing the work test for people aged 67-74 to make non-concessional contributions will provide more flexibility for retirees under 75 to top up their super without needing to work 40 hours within 30 consecutive days in a year prior to making a contribution. It will also allow advisers to implement strategies, such as the re-contribution strategy, that are not normally available to retired clients in this age group.
The removal of the work test to allow salary sacrifice contributions to be made on behalf of people in this age group also means funds will be able to automatically accept these contributions without needing to first confirm the member has satisfied the work test. It also means that members in this age group can have salary sacrifice contributions made on their behalf in the first week of a financial year.
The bring-forward rule and removal of the work test
It is unclear from this announcement whether the Government also intends to allow clients to use the bring-forward rules to age 74, or whether the current requirement to be under age 65 at some time in the financial year the bring-forward rule is triggered will still apply.
We are awaiting confirmation and will let you know once confirmed.
Reducing the eligibility age for downsizer contributions to 60
Expected to be 1 July 2022
The Government has announced it intends to reduce the eligibility age to make a downsizer contribution from 65 to 60 years of age.
The downsizer contribution rules allow people to make a one-off after-tax contribution to super of up to $300,000 from the proceeds of selling their home they have held for at least 10 years. Under the rules, both members of a couple can make downsizer contributions for the same home and the contributions do not count towards a member’s non-concessional contribution cap.
This measure is proposed to have effect from the start of the first financial year after the enabling legislation receives Royal Assent. The Government has stated that it expects this to occur prior to 1 July 2022.
Hyland Financial Planning comment
Reducing the eligibility age for downsizer contributions to age 60 could allow an eligible couple in their early sixties to sell their home and contribute up to $1.26m to super in a year by each making a $300,000 downsizer contribution and $330,000 non-concessional contribution.
Alternatively, where a client wants to contribute a much smaller amount, it will be important for an adviser to consider what type of contribution they should make in order to maximise their ability to make contributions in future.
For example, if a client in their early sixties has $300,000 from the sale of a home they want to contribute to super, they may be better off making a $300,000 non-concessional contribution under the bring-forward rule rather than a downsizer contribution, as this would then preserve their ability to make a downsizer contribution in future.
First Home Super Saver Scheme – increasing the maximum releasable amount to $50,000
Expected to be 1 July 2022
The Government has announced it will increase the maximum releasable amount for the First Home Super Saver Scheme (FHSSS) from $30,000 to $50,000.
Under the existing FHSSS rules, an eligible person can only apply to have up to $30,000 of their eligible (voluntary) contributions, plus a deemed earnings amount, released from super to purchase their first home.
This measure is proposed to have effect from the start of the first financial year after the enabling legislation receives Royal Assent. The Government has stated that it expects this to occur prior to 1 July 2022.
Hyland Financial Planning comment
Under the existing FHSSS rules, an eligible person can only apply to have a maximum of $15,000 of their voluntary contributions from any one financial year included in the amount that may be released. Therefore, a member would need to make voluntary contributions of up to $15,000 over two financial years to take maximum advantage of the scheme.
However, the Government has not announced that it intends to increase the $15,000 annual voluntary contribution limit. Therefore, a member would need to contribute over four plus years to take maximum advantage of the scheme under this proposal.
Removing the $450 per month minimum superannuation guarantee threshold
Expected to be 1 July 2022
The Government has announced it intends to remove the $450 per month minimum superannuation guarantee (SG) income threshold.
Under the current rules, an employer is not required to pay superannuation guarantee contributions for an employee who earns less than $450 per month.
This measure is proposed to have effect from the start of the first financial year after the enabling legislation receives Royal Assent. The Government has stated that it expects this to occur prior to 1 July 2022.
*Assumptions: Results are in today’s dollars and calculated using ASIC Moneysmart superannuation calculator with the default assumptions applied. Assumes a 30-year-old with a super balance of $50,000 drops down to part-time employment earning $449 per month for 10 years. Assumed age of retirement is 67 years of age.
Hyland Financial Planning comment
Taking into account that two out of every three part-time workers are female, the SG threshold disproportionately impacts women who do a small amount of paid work, or who work multiple jobs each paying less than $450 per month. Younger workers combining part-time employment with full-time university study are also in the same situation.
Abolishing the $450 per month threshold could therefore help younger workers over age 18 to start accumulating superannuation earlier as well as help address the gap in super savings between women and men.
For example, abolishing the threshold could give a female worker at age 30 who drops down to one part-time employment arrangement due to family caring responsibilities up to an extra $6,924 in super at age 40. This difference will then continue to grow over time due to compounding investment returns, increasing to $11,700 in today’s dollars by retirement at age 67*.
Complying pension and annuity conversions
Effective first financial year following Royal Assent
The Government has announced people with certain complying income stream products will be given a two-year window to commute and transfer the capital supporting their income stream (including any reserves) back into a superannuation account in the accumulation phase. The member can then decide whether to commence a new account based pension, take a lump sum benefit or retain the balance in the accumulation account.
The income streams affected by this measure include:
market-linked income streams (otherwise known as Term Allocated Pensions),
complying life expectancy income streams and
complying lifetime income streams,
that were first commenced prior to 20 September 2007 from any provider, including self-managed superannuation funds (SMSFs).
Under the measure, any commuted reserves will not be counted towards an individual’s concessional contributions cap but they will be taxed as an assessable contribution of the fund.
When commuted, any social security treatment the product carries such as 100% or 50% asset test exemption and/or grandfathering for income test purposes will cease. 7
However, the Government has confirmed there will be no re-assessment of the social security treatment the product received prior to the commutation. Therefore, the member would not be required to pay back any overpaid entitlements.
The Government has also confirmed the existing transfer balance cap rules will continue to apply. Therefore, on commutation the member will receive a debit in their transfer balance account based on the debit value method that applies.
Income streams not included in this measure include flexi-pensions offered by any provider and lifetime products offered by a large APRA-regulated defined benefit scheme (eg some older corporate funds) or public sector defined benefit scheme (eg CSS, PSS).
Hyland Financial Planning comment
The Fact Sheet ‘Superannuation – More Flexibility for Older Australians’ states the products covered as those that first commenced prior to 20 September 2007. This appears to include those products that have since been commuted and rolled over to commence a new complying product.
How the value of the reserves of life expectancy or lifetime products will be calculated for the purposes of determining the assessable contribution to the fund remains to be seen and will be an important consideration for larger balances.
It will be important for members to consider the effect of commutations and commencement of new income streams on their transfer balance account. Often the debit on the commutation of a complying income stream is well below the actual capital that is released. Members and trustees will need advice in this complex area.
This is particularly good news for trustees of SMSFs that hold these products where balances have been depleted to the point of making the expenses to administer the fund unviable.
Relaxing residency requirements for SMSFs and Small APRA Funds (SAFs)
Expected date 1 July 2022
The Government plans to relax the residency requirements for SMSFs by extending the central management and control test from 2 to 5 years and removing the active member test.
Under current rules, SMSF trustees living overseas who intend to return to Australia at some point can be away for a period of up to two years and the fund will still meet the central management and control test. Under the proposal, the trustee will be able to be away for up to five years and still meet the test.
Further, the active member test will be abolished. Under this test, if the fund had members that were ‘active’ by making contributions or rollovers into the fund, the residency status of the fund could be jeopardised. This means that members who are overseas for a period of time often cannot make contributions to their SMSF or SAF. In contrast, a non-resident can contribute to large APRA and industry funds without putting the fund’s residency status at risk.
Abolishing the active member test simplifies the rules and ensures that members and trustees who are temporarily overseas can continue to make contributions to their SMSF or SAF without jeopardising the fund’s complying status.
Hyland Financial Planning comment
Under the central management and control test, SMSFs trustees must only intend to move overseas on a temporary basis. If the trustees move away permanently with no intent to return, the current 2 year period (and the proposed 5 year period) will not apply and the SMSF will become a non-resident (and hence non-complying) fund immediately.
Early release of super for victims of family and domestic violence
Not proceeding
In the 2018 Women’s Economic Security Statement the Minister for Women, the Hon Kelly O’Dwyer MP, announced that the Government planned to extend the ability to access early release of superannuation to victims of family and domestic violence.
The Government confirms that this proposal will not be proceeding.
Individual tax
Personal income tax cuts – retaining the low and middle income tax offset for the 2021-22 income year
Effective 1 July 2021
The Low and Middle Income Tax Offset (LMITO) was due to be removed at the end of the current financial year. However, the Government has announced it will retain LMITO for the 2021-22 income year.
The LMITO provides a reduction in tax of up to $1,080. The table below shows the amount of offset an individual client is entitled to depending on their taxable income:
If the LMITO was removed as scheduled from 1 July 2021, individuals earning between $48,000 pa and $90,000 pa would have seen an increase of $1,080 in income tax and other individuals with taxable income between the effective tax-free threshold and $126,000 would also have been affected.
This announcement means that personal income tax will stay the same in 2021-22 income year compared with the current year.
The table below shows the tax cut at different income levels in 2021-22 if LMITO is retained compared with the scheduled removal of the LMITO:
Hyland Financial Planning comment
This announcement means that an individual’s effective tax-free income threshold for 2021-22 financial year remains the same compared with the current financial year. An individual who is not eligible for seniors and pensioners tax offset can effectively have taxable income of up to $23,226 without having to pay income tax.
It is important to note that the LMITO is a non-refundable tax offset. An individual who is eligible for LMITO is not required to complete a section in their tax return. The ATO will work out the LMITO once the tax return is lodged.
Modernising the individual tax residency rules
Effective 1 July following Royal Assent
The Government will replace the individual tax residency rules with a new, modernised framework based on recommendations made by the Board of Taxation in its 2019 report Reforming Individual Tax Residency Rules – a model for moderations.
Under the current rules, the definition of a ‘resident’ or ‘resident of Australia’ is defined in subsection 6(1) of the 1936 Act. The primary test for deciding the residency status of an individual is whether the individual resides in Australia according to the ordinary meaning of the word ‘resides’. If an individual does not reside in Australia according to the ordinary meaning, the other tests listed below must be considered in determining the individual’s residency status:
The domicile and permanent place of abode test that applies mainly to individuals who are usually residents of Australia but during the income year are not living in Australia
The 183 day test that enables the ATO to consider usual place of abode and intention to take up residence in Australia so that individuals who are enjoying an extended holiday in Australia are not treated as residents
The Commonwealth superannuation test.
Following extensive consultation and research, the Board of Taxation concluded that the current individual tax residency rules are no longer appropriate and require modernisation and simplification. Individuals (and their employers) can face large compliance costs, including the need to seek third-party advice despite having otherwise simple tax affairs. The Board also identified a number of integrity concerns that arise due to the ways in which the current rules operate.
Under the announcement new, modernised framework:
– The Government will replace the primary test with a simple ‘bright line’ test, that is a person who is physically present in Australia for 183 days or more in any income year will be an Australian tax resident
– Individuals who do not meet the primary test will be subject to secondary tests that depend on a combination of physical presence and measurable objective criteria.
The new framework will be easier to understand and apply in practice. It is designed to deliver greater certainty and lower compliance costs for globally mobile individuals and their employers.
Hyland Financial comment
Certain foreign residents for tax purposes are excluded from accessing the main residence CGT exemption on the sale of a property and therefore cannot make a downsizer contribution. The current residency test can result in uncertainty as to whether an individual is a tax resident at the time of a CGT event.
The proposed simplified residency test can provide greater certainty in terms of whether the individual is a tax resident at the time of disposal when determining the qualification for the downsizer contribution.
Please note that if an individual has come back to Australia and re-established their Australian tax residency solely for the purposes of getting access to the main residence CGT exemption, the ATO could apply Part IVA in the 1936 Tax Act (ie the general anti-avoidance provisions) to cancel any tax benefit that the tax payer may obtain under a scheme.
Employee Share Schemes – removing cessation of employment as a deferred taxing point
Effective 1 July following Royal Assent
The Government will remove the cessation of employment taxing point for the tax-deferred Employee Share Schemes (ESS) that are available to all companies.
This change will apply to ESS interests issued on or after 1 July following Royal Assent of the enabling legislation.
An ESS provides an employee with a financial share in the company where they work and is commonly used by an employer to attract and retain talent. An employee can participate in an ESS if they receive shares in the company they work for at a discounted price or they have the opportunity to buy shares in the company. Tax-deferred ESS is one of the concessional schemes employers may offer to employees.
A tax-deferred scheme allows an employee to defer paying tax in relation to their ESS interest until the income year in which the deferred taxing point occurs, instead of paying tax in the year the interest is acquired, if the employee and the scheme meet certain conditions.
Under the current rules, the deferred taxing point1 is the earliest of:
cessation of employment
in the case of shares, when there is no risk of forfeiture and no restrictions on disposal
in the case of options, when the employee exercises the option and there is no risk of forfeiting the resulting share and no restriction on disposal
the maximum period of deferral of 15 years.
The removal of cessation of employment as a deferred taxing point will result in tax being deferred until the earliest of the remaining taxing points.
The Government also announced regulatory improvements to reduce red tape for ESS. The regulatory changes will apply three months after Royal Assent of the enabling legislation.
Example
ABCDE Technology Limited, an Australian company, provides its employee Tamara shares under an ESS. Tamara is granted the shares on 1 October 2022, which will vest on 31 August 2025 after certain conditions are met.
On 31 December 2023, Tamara leaves her employment to pursue other opportunities but continues to be entitled to acquire the shares. Under the current law, Tamara would be taxed at the time she ceases employment before she has acquired the shares.
Under the new arrangements, Tamara would be taxed at the next deferred taxing point when there is no risk of forfeiture and no restrictions on disposal of the shares.
Hyland Financial Planning comment
Tax-deferred ESS is one of the concessional schemes employers may offer to employee. There are no proposed changes to other schemes. Please refer to the ATO website for more information about concessional ESSs.
Increasing the Medicare Levy low-income thresholds
Effective 1 July 2020
The Government will increase the Medicare levy low-income thresholds for singles, families, and seniors and pensioners from the 2020-21 income year.
The following table compares the level of taxable income below which no Medicare Levy is payable.
Freezing Medicare Levy surcharge thresholds for 2 years
Effective 1 July 2021
The Government will continue with the current policy settings for the income thresholds for the Medicare Levy Surcharge (MLS) and Private Health Insurance Rebate for a further two years from 1 July 2021.
The following table outlines the income thresholds for Medicare Levy Surcharge and the respective Private Health Insurance Rebate for each income tier:
Simplifying self-education tax deductions
Effective from the income year after Royal Assent
Currently, tax deductions for Category-A self-education expenses must generally be reduced by $250.
The Government has proposed removing this $250 reduction amount to effectively allow individuals to claim a tax deduction for all Category-A self-education expenses.
Category-A expenses include tuition fees, textbooks, stationary, student union fees, student services and amenities fees, public transport fares, car expenses worked out using the ‘logbook’ method (other than the decline in value of a car), running expenses for a room set aside specifically for study.
Business tax incentives
The Government will support business to invest, grow and create more jobs through targeted tax incentives.
Extending temporary full expensing
Effective 6 October 2020
Businesses with aggregated annual turnover within the relevant threshold will be able to deduct the full cost of eligible capital assets acquired from 7:30pm AEDT on 6 October 2020 (Budget night) and first used or installed by 30 June 2023 (extended from 30 June 2022 previously).
Full expensing in the year of first use will apply to new depreciable assets and the cost of improvements to existing eligible assets for businesses with aggregated annual turnover of less than $5 billion.
Full expensing also applies to second-hand assets for small and medium sized businesses with aggregated annual turnover of less than $50 million.
Full expensing does not apply to second-hand assets for businesses with aggregated annual turnover of $50 million or more.
Extending temporary loss carry-back
Effective from 2019-20
Ordinarily, companies are required to carry losses forward to offset profits in future years.
The Government has announced that it will extend the temporary loss carry-back measure a further 12 months to allow companies with aggregated annual turnover of less than $5 billion to carry back tax losses from 2019-20, 2020-21, 2021-22 or 2022-23 income years to offset previously taxed profits in the 2018-19 or later income years.
Eligible corporate tax entities can elect to apply tax losses against taxed profit in a previous year, generating a refundable tax offset in the year in which the loss is made. The tax refund is limited by requiring that the amount carried back is not more than the earlier taxed profit and cannot result in a franking account deficit.
The tax refund will be available on election by eligible companies when they lodge their 2020-21, 2021-22 and 2022-23 tax returns.
Companies that do not elect to carry back losses under this measure can still carry losses forward as normal.
Hyland Financial Planning comment
The temporary loss carry-back measure allows an eligible business to access their losses earlier and generate a cash refund to provide a cash flow boost for the corporate business.
International tax
Updating the list of exchange of information jurisdictions
Effective 1 July 2022
The Government will update the list of jurisdictions that have an effective information sharing agreement with Australia. Residents of listed jurisdictions are eligible to access the reduced Managed Investment Trust (MIT) withholding tax rate of 15% on certain distributions, instead of the default rate of 30%. The updated list will be effective from 1 July 2022.
To be listed, jurisdictions must have established the legal relationship enabling them to share taxpayer information with Australia. This measure will add Armenia, Cabo Verde, Kenya, Mongolia, Montenegro and Oman to the list. These new jurisdictions have entered into information sharing agreements since the previous update in 1 January 2021.
Social Security
Increasing the flexibility of the Pension Loans Scheme
Effective 1 July 2022
The Pension Loans Scheme (PLS), a voluntary, reverse mortgage type loan available through Services Australia, currently allows a fortnightly loan of up to 150% of the maximum rate of Age Pension. From 1 July 2022, the Government will implement two changes to the scheme – a No Negative Equity Guarantee and lump sum advances.
No Negative Equity Guarantee
A No Negative Equity Guarantee will be introduced so borrowers, or their estate, will not have to repay more than the market value of their property, in the rare circumstance where their accrued PLS debt exceeds their property value.
Lump sum advances
Eligible people will be able to receive one or two lump sum advance payments totalling up to 50% of the maximum Age Pension each year. Based on current Age Pension rates, this is around $12,385 per year for singles and around $18,670 for couples combined.
Note, the total amount eligible people are able to receive under the pension loans scheme, including any lump sum advance payments, has not changed. The total amount cannot exceed 150% of the maximum Age Pension which is around $37,155 per year for singles and around $56,011 per year for couples.
Four-year Newly Arrived Resident’s Waiting Period (NARWP)
Effective 1 January 2022
The Government has announced it will apply a consistent four-year Newly Arrived Resident’s Waiting Period across most welfare payments from 1 January 2022.
This differs from current rules, where clients who have recently arrived as a resident in Australia may have to wait 1, 2 or 4 years before qualifying for a payment or concession card under the Newly Arrived Resident’s Waiting Period.
Increased support for unemployed Australians
Effective 1 April 2021
As already legislated, the government has made a number of changes to working age payments from 1 April 2021:
the base rate of working-age payments has been increased by $50 per fortnight. This increase applies to JobSeeker Payment, Youth Allowance, Parenting Payment, Austudy, ABSTUDY Living Allowance, Partner Allowance, Widow Allowance, Special Benefit, Farm Household Allowance and for certain Education Allowance recipients under the Department of Veterans’ Affairs Education Scheme
the income-free area of certain working-age payments has been increased to $150 per fortnight. This applies to JobSeeker Payment, Youth Allowance (other), Parenting Payment Partnered, Widow Allowance and Partner Allowance
the temporary waiver of the Ordinary Waiting Period for certain payments was extended to 30 June 2021
the eligibility criteria for JobSeeker Payment and Youth Allowance (other) for those required to self-isolate or care for others as a result of COVID-19 was extended to 30 June 2021
face-to-face servicing for job seekers has recommenced, implementing a graduated return in job search requirements from 15 per month from April 2021 to 20 per month from July 2021, and mandating job seekers in online employment services to complete their career profile in the jobactive system, to allow better job matching.
Social Security Agreements — Republic of Serbia and Bosnia-Herzegovina
Effective date TBA
The Government will enter into bilateral social security agreements with the Republic of Serbia and Bosnia-Herzegovina. Social security agreements enable Australia and the agreement countries to share the costs of providing retirement income support to those who have split their working life between countries.
Child care
Increase in child care subsidy
Effective 11 July 2022
The Government announced it will:
increase the Child Care Subsidy (CCS) rate by 30 percentage points for the second child and subsequent children aged five years and under in care, up to a maximum CCS rate of 95% for these children, commencing on 11 July 2022, and
remove the CCS annual cap of $10,560 per child per year commencing on 1 July 2022.
This will provide greater choice to parents who want to work an extra day or two a week. Removing the annual cap helps support the choices of parents to work the hours they want to work and, in particular, reduces barriers that secondary income earners face when seeking to work more.
The current hourly fee caps will continue to apply.
Hyland Financial Planning comment
The increase in Child Care Subsidy will benefit eligible families with two children under five in childcare.
The removal of the annual cap will also help eligible families with a combined income of more than $189,390, by removing the subsidy cap that restricts them to a maximum of $10,560 child care subsidy per child per financial year.
Aged care
In response to the Royal Commission into Aged Care Quality and Safety, the Government is investing $17.7 billion over five years into improving the aged care system.
Increased funding for Home Care
Effective 1 July 2021
To support senior Australians to remain at home, the Government is funding an additional 80,000 Home Care packages:
40,000 released in 2021-22
40,000 released in 2022-23
Additional respite care services will be provided to assist carers and enhanced support services will be provided to assist senior Australians to navigate the aged care system.
Increased funding for residential aged care
Effective over 3 phases: 2021, 2022-23, 2024-25
To improve and simplify residential aged care services, the Government is implementing a range of measures, including:
Increased funding for aged care providers to deliver better care and services, including food through a new Government-funded Basic Daily Fee Supplement of $10 per resident per day
Assigning residential aged care places directly to senior Australians and supporting providers to adjust to a more competitive market
Expansion of the Independent Hospital Pricing Authority to help ensure aged care costs are directly related to the care provided
Implementation of a new funding model – the Australian National Aged Care Classification system
Increased funding to drive systemic improvements to residential aged care quality and safety including increased funding for the Aged Care Quality and Safety Commission
A new star rating system to highlight the quality of aged care services and funding to expand independent advocacy to support greater choice and quality safeguards
Upskilling of the existing aged care workforce, financial support for Registered Nurses and funding to train new aged care workers, including subsidised places through JobTrainer
Creation of a single assessment workforce to undertake all assessments to simplify the assessment experience for senior Australians who enter or progress within the aged care system
Supporting senior Australians to access information about aged care through the introduction of dedicated face-to-face services
An increase in front line care (care minutes) delivered to residents of aged care and respite services, mandated at 200 minutes per day, including 40 minutes with a Registered Nurse, by 2023
Funding to improve the governance of the aged care system including the drafting of a new Aged Care Act by mid-2023
Hyland Financial Planning comment
The proposed reforms to the aged care system are in response to the 148 recommendations of the Royal Commission into Aged Care Quality and Safety.
The Government also released their response to the Royal Commission on 11 May 2021.
A number of recommendations impacting aged care funding were not accepted, such as the proposed 1% increase in Medicare Levy. The Government also did not accept changes to the basic daily care fee and means tested fees.
The proposal to phase out Refundable Accommodation Deposits is subject to further consideration with the Government considering options to reduce the current dependence on Refundable Accommodation Deposits as a mechanism to raise capital.
After an eventful summer of weather extremes, on-again off-again lockdowns and the swearing in of a new US President, many will be hoping that Autumn ushers in a change of more than the season. As the vaccine rollout begins, there are also promising signs that economic recovery may be earlier than expected.
Australia’s economy has improved and the downturn was not as deep as feared. That was the message Reserve Bank Governor Philip Lowe delivered to Parliament on February 5, citing strong employment growth, retail spending and housing. Unemployment fell from 6.6% to 6.4% in January, although annual wage growth remains steady at a record low of 1.4% after a 0.6% increase in the December quarter. Retail trade rose 0.6% in January, 10.7% higher than a year ago. While home lending jumped 8.6% in December. This helped fuel the 3% rise in national home values in the year to January, led by a 7.9% increase in in regional prices.
Business and consumer sentiment is also improving. The NAB Business Confidence Index was up from 4.7 points to 10.0 points in January, although 60% of businesses say they are not interested in borrowing to invest. Halfway through the corporate reporting season, 87% of ASX200 companies reported a profit in the December half year, although earnings were 14% lower in aggregate while dividends were 4% higher. The ANZ-Roy Morgan Consumer Confidence rating eased slightly in February but is still up 67% since last March’s low.
Higher commodity prices lifted the Aussie dollar to a three-year high. It closed the month around US78.7c, on the back of a 31% rise in crude oil prices and an 8.5% lift in iron ore prices in 2021 to date.
There’s more than one way to boost your retirement income.
After spending their working life building retirement savings, many retirees are often reluctant to eat into their “nest egg” too quickly. This is understandable, given that we are living longer than previous generations and may need to pay for aged care and health costs later in life.
But this cautious approach also means many retirees are living more frugally than they need to. This was one of the key messages from the Government’s recent Retirement Income Review, which found most people die with the bulk of the wealth they had at retirement intact.i
One of the benefits of advice is that we can help you plan your retirement income so you know how much you can afford to spend today, secure in the knowledge that your future needs are covered.
Minimum super pension withdrawals.
Under superannuation legislation, once you retire and transfer your super into a pension account, you must withdraw a minimum amount each year. This amount increases from 4 per cent of your account balance for retirees aged under 65 to 14 per cent for those aged 95 and over. (These rates have been halved temporarily for the 2020 and 2021 financial years due to COVID-19.)
One of the common misconceptions about our retirement system, according to the Retirement Income Review, is that these minimum drawdowns are what the Government recommends. Instead, they are there to ensure retirees use their super to fund their retirement, rather than as a store of tax-advantaged wealth to pass down the generations.
In practice, super is unlikely to be your only source of retirement income.
The three pillars.
Most retirees live on a combination of Age Pension topped up with income from super and other investments – the so-called three pillars of our retirement system. Yet despite compulsory super being around for almost 30 years, over 70 per cent of people aged 66 and over still receive a full or part-Age Pension.
While the Retirement Income Review found most of today’s retirees have adequate retirement income, it argued they could do better. Not by saving more, but by using what they have more efficiently.
Withdrawing more of your super nest egg is one way of improving retirement outcomes, but for those who could still do with extra income the answer could lie in your nest.
Unlocking housing wealth
Australian retirees are some of the wealthiest in the world, with median household wealth of around $1.4 million. Yet close to $1 million of this wealth is tied up in the family home.
That’s a lot of money to leave to the kids, especially when many retirees end up living in homes that are too large while they struggle to afford the retirement lifestyle they had hoped for.
For these reasons there is growing interest in ways that allow retirees to tap into their home equity. Of course, not everyone will want or need to take advantage of these options. But if you are looking for ways to use your home to generate retirement income, but don’t relish the thought of welcoming Airbnb guests, here are some options:
Downsizer contributions to your super. If you are aged 65 or older and sell your home, perhaps to buy something smaller, you may be able to put up to $300,000 of the proceeds into super (up to $600,000 for couples).
The Pension Loans Scheme (PLS). Offered by the government via Centrelink, the PLS allows older Australians to receive tax-free fortnightly income by taking out a loan against the equity in their home. The loan plus interest (currently 4.5 per cent per year) is repaid when you sell or after your death.
Reverse Mortgages (also called equity release or home equity schemes). Similar to the PLS but offered by commercial providers. Unlike the PLS, drawdowns can be taken as a lump sum, income stream or line of credit but this flexibility comes at the cost of higher interest rates.
The big picture.
While super is important, for most people it’s not the only source of retirement income.
If you would like to discuss your retirement income needs and how to make the most of your assets, give us a call.
Like trees losing their leaves in autumn, why not take a leaf out of their book and choose this time of year to shed some of your own financial baggage.
In the style of Marie Kondo, the Japanese organising whizz who has inspired millions to clean out their cupboards, decluttering your finances can bring many benefits.
While you work through all your contracts, investments and commitments, you will no doubt discover many that no longer fit your lifestyle or are simply costing you in unnecessary fees.
And if that is the case, then it is likely that such commitments will not be sparking any joy. And joy is the key criteria Kondo uses to determine whether you hold on to something or let it go.
So how does decluttering work with your finances and where do you start?
Where are you?
The first step is probably to assess where you are right now. That means working out your income and your expenses.
There are many ways to monitor your spending including online apps and the good old-fashioned pen-and-paper method.
Make sure you capture all your expenditure as some can be hidden these days with buy now pay later, credit card and online shopping purchases.
The next step is to organise your expenditure in order of necessity. At the top of the list would be housing, then utilities, transport, food, health and education. After that, you move on to those discretionary items such as clothes, hairdressing and entertainment.
Work through the list determining what you can keep, what you can discard and what you can adapt to your changed needs. Remember, if it doesn’t spark joy then you should probably get rid of it.
Weed out excess accounts.
Now you need to look at the methods you use when spending. Decluttering can include cancelling multiple credit cards and consolidating your purchases into the one card. This has a twofold impact: firstly, you will be able to control your spending better; and secondly, it may well cut your costs by shedding multiple fees.
Another area where multiple accounts can take their toll is super. Consider consolidating your accounts into one. Not only can this make it easier to keep track of, but it will save money on duplicate fees and insurance. If you think you may have long forgotten super accounts, search for them on the Australian Tax Office’s lost super website. Since July 2019, super providers must transfer inactive accounts to the tax office.
Once you have reviewed your superannuation, the next step is to check that your investments match your risk profile and your retirement plans. If they aren’t aligned, then it’s likely they will not spark much joy in the future when you start drawing down your retirement savings.
If you have many years before retirement and can tolerate some risk, you may consider being reasonably aggressive in your investment choice as you will have sufficient time to ride investment cycles. You can gradually reduce risk in the years leading up to and following retirement.
Sort through your insurances.
Another area to check is insurance. While insurance, whether in or out of super, may not spark much joy, you will be over the moon should you ever need to make a claim and have the right cover in place.
When it comes to insurance, make sure your cover reflects your life stage. For instance, if you have recently bought a home or had a child, you may need to increase your life insurance cover to protect your family. Or if your mortgage is paid off and the kids have left home, you might decide to reduce your cover.
Prune your investments.
If you also have investments outside your super, they too might benefit from some decluttering. As the end of the financial year approaches, now is a good time to look at your portfolio, sell underperforming assets and generally rebalance your investments.
Many people who have applied Marie Kondo’s decluttering rules to their possessions talk about the feeling of freedom and release it engenders. It may well be that applying the same logic to your finances gets you one step closer to financial freedom.
If you would like to review or make changes to your finances, why not call us to discuss.
Love and money: achieving financial harmony.
The past 12 months have been a challenging time for many of us on a personal level, with the pandemic having a far-reaching impact on so many aspects of our lives. While the Australian economy is proving remarkably resilient, personal finances have been affected in different ways by lockdowns and government initiatives put in place to soften the economic toll of the pandemic.
Whether your finances were adversely impacted, or you came out of 2021 relatively unscathed, if you are in a relationship you and your partner’s attitude towards your finances may have shifted. Given that money has the potential to be a source of conflict in relationships, it’s a now a good time to get in sync to ensure you are on track to achieving financial harmony.
Check in and see where you stand financially.
The first step is knowing where you stand financially. This involves looking through your shared and individual accounts and being open with each other about your saving and spending habits.
This is unlikely to make for a romantic date night given the potential for uncomfortable conversations, which is why one in three Australians admit having kept a financial secret from their partner.i However, by being transparent with your partner, you’ll be working through issues before they snowball into a source of greater financial and relationship stress.
Discuss or re-evaluate your goals.
We can all lose track of our end goals, especially when life becomes unpredictable and we need to shift focus. So that you don’t move too far away from your financial goals, re-evaluate your priorities. These may have changed in the past year – maybe you’ve had to halt those travel plans or realised you no longer need or can’t afford that new car.
As you and your partner are two individuals, you might not always be aligned in terms of your approaches to saving and spending. We all have different deeply entrenched views and beliefs around money and it’s one area that you may never completely see eye to eye on. That also goes for goals – we all have our own dreams and ambitions. Maybe one of you sees a need to renovate the bathroom, while the other thinks the money would be better spent on a holiday. Discuss the goals you both have and be prepared for compromise to find a plan that suits the family as a whole.
Re-evaluate your priorities and how you spend
Priorities and spending habits can change over time and more recently, in response to a changed world. In 2020, 56% of Australian households surveyed believed their financial situation was vulnerable or worse due to the pandemic.ii You may have less disposable income and needed to tap into savings or your superannuation or access credit as a result.
It’s important to acknowledge if your financial position has changed, reassess your priorities and make any necessary adjustments. This may involve taking a look at your spending and saving habits and making changes so that your dollars go towards supporting what’s most important to your family. Again, it’s important to discuss this with your partner and work through it together.
Develop a budget.
Budgeting is an obvious step, but you’ll need to ensure that the budget works for both of you and supports your shared goals. There are great budgeting apps you can use, but what you’ll both need to bring to the table is a commitment to sticking with the agreed upon budget. Discuss your household needs, such as mortgage or rent payments, utilities, etc, as well as your individual needs and what your shared goals are.
Try to agree on a system that keeps you both accountable. It can be as formal as filling out a spreadsheet every week, or perhaps having a monthly family meeting around how things are tracking and if there’s any room for improvement.
Money talk in relationships can be tricky as it’s often a loaded and emotive topic that can bring up other issues. This is why an adviser can help with these conversations, facilitating discussions in a safe and neutral environment and providing expert advice, tailored to your situation.
We’re celebrating International Women’s Day with Jackie Austin and Sue Morris, Financial Advisers at Hyland Financial Planning.
Justin Hyland gives us his take on day-to-day actions that drive equality at work.
“We believe a culture of appreciation and respect in the workplace is so important and this is symbolically recognised on days like today. We try to promote a culture where all our decision making happens in a values-led way, collaboratively, and without hierarchy. That is a huge part of promoting equality in the workplace and a driver of our success during a challenging 2020. Thank you Jackie and Sue for your commitment, perseverance and teamwork when the going got tough.”
“Downsizer” contributions let you contribute some of the proceeds from the sale of your home into superannuation – but there are several important eligibility requirements. Learn which areas the ATO says are tripping up superannuation members and ensure you get it right.
Are you thinking about selling the family home in order to raise funds for retirement? Under the “downsizer” contribution scheme, individuals aged 65 years and over who sell their home may contribute sale proceeds of up to $300,000 per member as a “downsizer” superannuation contribution (which means up to $600,000 for a couple).
These contributions don’t count towards your non-concessional contributions cap and can be made even if your total superannuation balance exceeds $1.6 million. You’re also exempt from the “work test” that usually applies to voluntary contributions by members aged 65 and over.
The government reports that as at June 2019 over 4,000 people around Australia had taken advantage of the scheme in its first year, representing total superannuation contributions of over $1 billion.
The downsizer scheme is a good opportunity for many Australians to boost their retirement savings, but you must ensure you’re eligible before making a contribution. If you don’t qualify, your contribution could count as a non-concessional contribution and cause you to breach your contributions cap. Here are some areas where the ATO is seeing mistakes with the eligibility rules:
The 10 Year Ownership Requirement
In order to qualify, you, your spouse or a former spouse must have owned the property for the 10 years prior to the sale.
The ATO explains that it’s not necessary for the same person to hold the property during those 10 years, as long as it was held by some combination of the person, their spouse and/or former spouse throughout the 10 years.
However, there’s an additional requirement: the property must be owned by you or a current spouse (not a former spouse) just before you sell. This means, for example, that where a couple divorces and the property is transferred to one spouse under the property settlement, when that spouse eventually sells the property they can potentially make a downsizer contribution, but their ex-spouse cannot.
Another thing to watch is the 10-year ownership period. The ATO says that the ownership period is generally calculated from the date of settlement of purchase to the date of settlement of sale. If you signed a contract to purchase “off the plan” and the settlement occurred much later, be aware that the ownership period for downsizer purposes only starts upon settlement.
The Main Residence Exemption Requirement
Another key requirement is that the capital gain from the sale must be wholly or partially exempt from capital gains tax (CGT) under the “main residence exemption”. If your home is a “pre-CGT asset” (ie acquired before 20 September 1985 and therefore not subject to CGT), it must be the case that the capital gain would hypothetically qualify for the main residence exemption, in whole or in part, if it had been acquired on or after 20 September 1985.
You won’t qualify for any main residence exemption where you’ve never used the property as your main residence – perhaps because it’s a rental property permanently leased to tenants, or your holiday home.
But thankfully, even a partial main residence exemption will allow you to make downsizer contributions. Common situations giving rise to a partial exemption include using your home to generate income (in addition to living there); where the land adjacent to your home’s dwelling exceeds two hectares; or where you’ve only lived on the property for part of the ownership period.
The main residence requirement is not related to the 10-year ownership requirement, so it’s not necessary that the property was your main residence during that 10-year period. It’s only necessary that you have (or would have) at least a partial main residence exemption.
