1. Superannuation Changes
May 2017
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2. Disclaimer
The information in this presentation is general information only. It is not personal advice. This presentation is not intended to and should not be taken as a recommendation of any investment options and it does not take into account your particular objectives, financial circumstances or needs.
Before making any investment decisions regarding this information, you should read the Fund’s Product Disclosure Statement for your category of membership and also consider your objectives, financial situation and needs. You may also wish to consider obtaining professional advice before making your decision.
Towers Watson Australia Pty Ltd
ABN , AFSL
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3. Agenda Investment market update Personal tax
Legislative update – Superannuation contributions
Legislative update – Transition to Retirement Pensions and the Transfer Balance Cap
Centrelink Age Pension
Action Plan
Elphinstone Group Superannuation Fund
Questions
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4. What do you think? When I retire….
Social security will be much less generous than it is now?
70% of Australians agree
The medical benefits provided by the government will be worse?
65% of Australians agree
I will be much worse off than my parent’s generation are/were in retirement?
Note: Percentage agree or strongly agree, not at all confident or not too confident
Source: 2015/16 Willis Towers Watson Global Benefits Attitudes Survey
Sample: All full time employees
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5. Investment Market Trends
Economic growth and inflation to be muted
Domestic growth currently 2.4% per annum
Cash rates to remain low
Domestic cash rate currently 1.5% per annum
Market volatility to persist
BREXIT
Donald Trump
Geo-political risks
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6. Historic Asset Class Performance
Year to 30 June
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Australian Shares
30.3
-12.1
-22.1
13.8
12.2
-7.0
20.7
17.6
5.7
2.0
International Shares (unhedged)
7.8
-21.3
-16.3
5.2
2.7
-0.5
33.1
20.4
25.2
0.4
International Shares (hedged)
21.4
-15.7
-26.6
11.5
22.3
-2.1
21.3
21.9
8.5
-2.7
Australian Property
25.9
-36.3
-42.3
5.8
11.0
24.2
11.1
20.3
24.6
Cash
6.4
7.4
5.5
3.9
5.0
4.7
3.3
2.6
2.2
Australian Fixed Interest
4.0
4.4
10.8
7.9
12.4
2.8
6.1
5.6 7
Diversified
18.2
-11.0
-14.4
9.6
1.7
17.3
14.2
9.8
Note: The returns detailed above are not the same as the Fund’s. The Diversified Portfolio is a portfolio constructed from the returns of these market indices with the asset allocation of: 35% in Australian shares, 12.5% in international shares (unhedged), 12.5% in international shares (hedged), 25% in Australian Fixed interest, 10% in Australian property securities, 5% in cash. Source: Vanguard.
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7. Legislative Update Personal taxation from 1 July 2016
The upper limit for the middle income tax bracket of 32.5% increased from $80,000 to $87,000, resulting in the following personal marginal tax rates
* Rates quoted exclude Medicare Levy (2%) and Temporary Budget Repair Levy (2%). The Temporary Budget Repair Levy applies to income over $180,000 per annum until 30 June 2017
For individuals earning over $80,000 per annum, will result in $315 per annum tax saving
Taxable Income
Marginal Rate*
< $18,200
Nil
$18,201 - $37,000
19%
$37,001 - $87,000
32.5%
$87,001 - $180,000
37%
> $180,000
45%
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8. Superannuation – Concessional Contributions
Concessional contributions include superannuation guarantee and salary sacrifice contributions
The superannuation guarantee (SG) requires employers to contribute 9.5% of employees’ ordinary time earnings (OTE) to superannuation
The superannuation guarantee will increase to 12% by 2025/26
Effective date SG
< 30 June 2021
9.5%
1 July 2021
10%
1 July 2022
10.5%
1 July 2023
11%
1 July 2024
11.5%
1 July 2025
12%
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9. Superannuation – Concessional Contributions
The concessional cap will reduce to $25,000 per annum regardless of age from 1 July 2017
¹ Subject to the work test
Concessional contributions taxed at 15%
For individuals with assessable income in excess of $300,000 ($250,000 from 1 July 2017) concessional contributions taxed at 30% under Division 293. Assessable income includes your concessional contributions
Up to 85% of excess contributions can be withdrawn from superannuation
Assessed as income at your marginal tax rate plus the relevant levies
ATO applies an interest charge to recognise the fact that income tax is paid later
Excess concessional contributions not withdrawn from superannuation count towards your non-concessional contribution cap
Current Legislation
From 1 July 2017
Concessional contribution cap
< age 50
$30,000
$25,000
50 – 65 years
$35,000
65 – 75 years¹
- Also mention ability to make deductible contributions
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10. Superannuation – Deductible Concessional Contributions
Currently only unsupported individuals are able to make tax deductible contributions to superannuation:
From 1 July 2017 individuals will be permitted to make deductible contributions regardless of their employment arrangement
The Elphinstone Group Superannuation Fund is yet to confirm if deductible contributions will be permitted
Deductible contributions may be appropriate if an individual:
does not have sufficient cashflow to implement a regular salary sacrifice strategy
generates an assessable capital gain
Unsupported
No employer contributions are made to superannuation; or
Substantially
self-employed
Employment income is less than 10% of total assessable income
Also note:
In the event Elphinstone Group Superannuation Fund does not accept deductible contributions, a deductible contribution could be made to an alternative Fund and subsequently rolled over
The following examples:
Sell an investment property or parcel of shares and realise a capital gain
Contribute a bonus or tax refund to super as a deductible contribution to improve the tax-efficiency of your income and maximise your superannuation benefit
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11. Salary Sacrifice 45 year old – 9.5% Superannuation Guarantee (SG)
* Including Medicare Levy
Income
No Salary Sacrifice
Gross Salary
$70,000
Less Salary Sacrifice $0
Assessable Income
Less Tax*
$15,697
Net Income
$54,303
Superannuation Guarantee
$6,650
Salary Sacrifice
Less 15% Contributions Tax
$998
Net Superannuation Benefit
$5,652
Total Benefit
$59,955
Current
$70,000
$23,350
$46,650
$7,341
$39,309
$6,650
$4,500
$25,500
$64,809
From 1 July 2017
$70,000
$18,350
$51,650
$9,141
$42,509
$6,650
$3,750
$21,250
$63,759
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12. Salary Sacrifice 55 year old – 9.5% Superannuation Guarantee (SG)
* Including Medicare Levy
Income
No Salary Sacrifice
Gross Salary
$70,000
Less Salary Sacrifice $0
Assessable Income
Less Tax*
$15,697
Net Income
$54,303
Superannuation Guarantee
$6,650
Salary Sacrifice
Less 15% Contributions Tax
$998
Net Superannuation Benefit
$5,652
Total Benefit
$59,955
Current
$70,000
$28,350
$41,650
$5,541
$36,109
$6,650
$5,250
$29,750
$65,859
From 1 July 2017
$70,000
$18,350
$51,650
$9,141
$42,509
$6,650
$3,750
$21,250
$63,759
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13. Superannuation – Concessional Contributions
From 1 July 2019
Individuals with superannuation balances below $500,000 will be permitted to make additional concessional contributions where they have not reached their concessional contribution cap in the previous five financial years (from 2018/19)
Example:
¹ Based on $70,000 salary and Superannuation Guarantee
² Assuming no salary sacrifice or indexation of the concessional contribution cap
Rolling 5 year carry forward
2018/19
2019/20
2020/21
2021/22
2022/23
Concessional cap
$25,000
Less employer contribution¹
$6,650
$7,000
$7,350
Unused concessional cap²
$18,350
$18,000
$17,650
Previous year(s) bring forward
Nil
$36,700
$55,050
$73,050
Additional concessional contribution capacity
$90,700
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14. Superannuation – Non-concessional Contributions
Made on an after tax basis, contribution tax does not apply
From 1 July 2017 the non-concessional contribution cap will reduce to $100,000 per annum, with a two year bring forward of up to $300,000 available prior to age 65
¹ Subject to the work test
Transitional arrangements apply to two year bring forward
Non-concessional contribution cap is nil once total superannuation benefits exceed $1.6 million
Full bring forward not available if total superannuation benefits exceed $1.4 million
Previously announced $500,000 lifetime cap will not proceed
Current legislation
From 1 July 2017
Non-concessional contribution cap
< age 65
$180,000 or
$540,000 two year bring forward
$100,000 or
$300,000 two year bring forward
65 – 75 years¹
$180,000
$100,000
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15. Legislative Update Low income tax offsets from 1 July 2017
Low Income Superannuation Tax Offset (LISTO)
Will reduce tax on superannuation contributions for individuals with taxable income less than $37,000 per annum
Annual cap of $500
ATO will determine eligibility and pay offset to superannuation fund directly
Extension of low income spouse contribution tax offset
Tax offset of 18% of contributions made by a contributing spouse, up to $540
Income thresholds will increase:
Current
From 1 July 2017
Lower Threshold
Upper Threshold
$10,800
$13,800
$37,000
$40,000
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16. Government Co-contribution
Provides an incentive for individuals to make after tax contributions to superannuation
At least 10% of assessable income must be from employment and a tax return must be submitted
The maximum annual Government Co-contribution is $500 per annum based on a member contribution of $1,000 per annum
Entitlement decreases by cents per $1 of income above the following income thresholds:
2016/17
2017/18
Lower Threshold
Upper Threshold
$36,021
$51,021
$36,813
$51,813
Also note:
- Whilst this might not apply to you, could be an appropriate strategy for your low income spouse or children
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17. Contribution Splitting
Enables 85% of concessional contributions, irrespective of their source, to be transferred to your spouse’s superannuation account
The 85% represents concessional contributions less 15% tax
Split contributions count towards the contributing member’s concessional cap, not the recipient spouse’s concessional cap
Implemented retrospectively for the previous financial year
May result in a more equitable distribution of superannuation benefits, which may be beneficial once the $1.6 million transfer balance cap applies
To be eligible, the receiving spouse must not have satisfied a superannuation condition of release
Contribution splitting is not offered by all superannuation funds
- Elphinstone Group Superannuation Fund does not offer contribution splitting
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18. Preservation Cannot access preserved benefits until you:
Leave the company after age 60
Leave the company after your preservation age and the trustee is satisfied that you intend to permanently retire from the workforce
Attain age 65
Death, Total & Permanent Disablement or Terminal Illness
Satisfy a condition on compassionate grounds or due to financial hardship
Born
Preservation Age
Before 1 July 1960 55
1 July 1960 and 30 June 1961 56
1 July 1961 and 30 June 1962 57
1 July 1962 and 30 June 1963 58
1 July 1963 and 30 June 1964 59
After 1 July 1964 60
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19. Legislative Update Transition to Retirement Pensions from 1 July 2017
The tax exemption applicable to investment earnings from assets supporting Transition to Retirement Pensions will be removed
Depending on individual circumstances it may still be appropriate for some individuals to maintain transition to retirement pension post 1 July 2017
Current Legislation
From 1 July 2017
Income
Tax-free
A maximum of 15%, can be reduced by deductions and other offsets such as imputation credits
Capital Gains
15% for assets held less than 12 months
10% for assets held more than 12 months
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20. < $1.6 million transfer cap > $1.6 million transfer cap
Legislative Update
Retirement Pensions from 1 July 2017
$1.6 million transfer balance cap
Will limit amount that can be transferred to a tax-free pension
Excess benefits can be retained in accumulation or withdrawn
Penalty taxes apply to excess amounts not withdrawn or retained in accumulation and pension may be compulsorily commuted
Transition to Retirement Pensions will not count towards the cap
< $1.6 million transfer cap
Income
Zero
Capital Gains
> $1.6 million transfer cap
A maximum of 15%, can be reduced by deductions and other offsets such as imputation credits
15% for assets held less than 12 months
10% for assets held more than 12 months
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21. Pension Strategies Couple 1: Couple 2:
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22. Pension Strategies
Shifting to equitable distribution of superannuation benefits
Spouse contributions
Contribution splitting
Salary sacrifice
Carried forward concessional contributions
Non-concessional contributions
Maximising LISTO
Government Co-contribution
Withdrawal/re-contribution
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23. Centrelink – Age Pension
Eligibility
Date of Birth
Male
Female
1 July 1947 – 31 December 1948
65 years
64.5 years
1 January 1949 – 30 June 1952
1 July 1952 – 31 December 1953
65.5 years
1 January 1954 – 30 June 1955
66 years
1 July 1955 – 31 December 1956
66.5 years
After 31 December 1956
67 years
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24. Centrelink – Age Pension
Means test as at 20 March 2017
Homeowners
Lower threshold
Upper threshold
Maximum Pension*
Single
Asset test
$250,000
$546,250
$ pf
($23, pa)
Income test
$4,264
$50,455.60
Couple
$375,000
$821,500
$ each pf
($34, pa combined)
$7,592
$77,230.40
* Inclusive of Pension and Clean Energy Supplements
Excludes family home, superannuation assets prior to attaining age pension eligibility age and up to $250 of employment income per fortnight
Above the lower threshold, pension entitlement reduces:
Asset test - $3 per fortnight per $1,000 of assessable assets
Income test - $0.50 per fortnight for singles and $0.25 for each member of a couple, for each $1,000 of assessable income
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25. 42% 53% 71% 19.2men 22.0women $292,510 $138,154 Are you on track?
current life expectancy at age 65
19.2men
22.0women
A comfortable retirement lifestyle:
$43,538 pa
for Singles
$59,808 pa
for Couples
Mean superannuation balance for year olds
$292,510
for men
$138,154
for women
Sources: Towers Watson Retirement Attitudes Survey, 2011; Australian Bureau of Statistics (ABS) 2016; ASFA Retirement Standard December 2016; Australian Government Actuary; Australian Life Tables
employees believe they have retirement resources to last 25 years
42%
individuals expect superannuation to be their main source of retirement income
53%
Australians intend to retire after age 65
with 23% intending to retire after age 70
71%
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26. Your action plan Have you…
Reviewed your superannuation contribution strategy
Pre and post 1 July 2017 salary sacrifice contributions
Eligibility for Government Co-contribution
Spouse contributions
Contribution splitting
Assessed the appropriateness of your current investment choice
Considered whether your insurance cover is sufficient
Got a valid superannuation death benefit nomination, Will and Power of Attorney
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27. Elphinstone Group Superannuation Fund
Fund Overview
Fund offers:
Accumulation account to current employees
Ability to continue to be a member of the fund even if you cease employment with the company (Retained Benefit section)
Transition to Retirement Pension
Account-Based Pension
Elphinstone contribute 9.5% of your ordinary time earnings to superannuation (regardless of the fund you select) in accordance with the statutory Superannuation Guarantee obligation
You can make additional voluntary contributions to superannuation from your pre-tax salary (salary sacrifice) or after-tax salary (non-concessional contributions)
Investment options
Accumulation and Retained Benefit Section: three diversified investment options and one asset class option (Cash)
Account-Based Pensions and Transition to Retirement Pensions: one diversified option (Balanced) and one asset class option (Cash)
Death and Total & Permanent Disablement insurance is available to Accumulation and Retained Benefit members
Your Death Cover only continues if your benefit is transferred to the Retained Benefit Section
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28. Elphinstone Group Superannuation Fund
Insurance
The Fund provides members with a basic level of insurance cover for Death and Total & Permanent Disablement
Your sum insured is calculated as:
10.5% x Salary x future years and complete months to age 65
For the purposes of calculating your insurance sum insured your salary is equal to your weekly wage multiplied by the number of weeks in a year
Evidence of good health is not required if you join the Fund when first eligible (generally on commencing employment) and are actively at work on the day you join the Fund
The sum insured is added to the sum of your superannuation benefit when a Death or Total & Permanent Disablement benefit is paid
You can also apply for top up your insurance cover by purchasing additional voluntary insurance
Evidence of good health is required and subject to underwriting
Insurance premiums are deducted from your superannuation benefit
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29. Elphinstone Group Superannuation Fund
Fees
Type of Fee/Cost
Amount
Notes
Exit
$130.80
Deducted from withdrawal
Switching
$50
Per switch
Administration
$410 - $460 pa
Employee, Retained Benefit and Pension members
Investment
0.40% % pa
Growth
0.25% % pa
Balanced (MySuper and Pension)
0.12% % pa
Conservative
0.05% % pa
Cash (Accumulation and Pension)
Indirect Cost Ratio (ICR)
0.30% pa
Deducted from investment earnings prior to determining each option’s crediting rate. The amount shown is an estimate only
Note: Activity fees may apply when you switch investments, require a benefit payment or for family law information/benefit splits
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30. Elphinstone Group Superannuation Fund
Asset Allocation as at 31 March 2017
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31. Elphinstone Group Superannuation Fund
Investment Performance
Accumulation
1 Jul – 31 Mar 2017*
5 year Average (p.a.)
10 year Average (p.a.)
Cash
1.2%
2.4%
3.5%
Conservative
2.7%
6.5%
4.8%
Balanced
9.3%
9.7%
5.4%
Growth
14.9%
12.3%
5.8%
* The above figures are year to date and are net of tax and investment fees (including the ICR)
Pension
1 Jul – 31 Mar 2017*
5 year Average (p.a.)
10 year Average (p.a.)
Cash
1.5%
2.9%
3.5%
Balanced
9.9%
10.6%
10.1%
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32. Questions
More information on the Elphinstone Group Superannuation Fund can be found at: Elphinstone Group Superannuation Fund administrator Phone Willis Towers Watson – Financial Planning Phone
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