Over the last two decades we've become used to receiving a raft of changes to superannuation on budget night.
Last Tuesday was different - changes were few in number, but significant in their potential effect.
A key finding of the Cooper enquiry into superannuation was that 80 per cent of Australians were "disengaged" with their superannuation.
As a result, they were paying excessive fees, remaining invested in inappropriate products by default, and many had multiple accounts due to job changes.
But, as I have said repeatedly, the major factor that determines how much superannuation you have when you retire is the net rate of return, after all fees and taxes.
Think about two people aged 30 now, with $25,000 in super and earning $60,000 a year. Their salaries increase by 4 per cent per annum and their contributions remain at 9.5 per cent of salary.
One is in a fund that averages 8 per cent net returns: by age 65 they have $1.8 million in super. The other is in a fund that returns just 5 per cent per annum; they end up with a measly $940,000 in super - half what they could have had in the better fund. The difference over time is immense.
So a major plank in the reforms announced last Tuesday night is that employees would have a lifetime fund, which would be "stapled" to them.
This means that when changing jobs, they would automatically stay with their existing fund unless they opt to move to the new employer's default super fund.
This change in thinking presents smart employers with an opportunity to make a huge difference in their employees' financial futures.
Employers could facilitate avenues for both new and existing staff members to examine the superannuation fund options to them and decide on the most appropriate one for them. It's a great way to get them engaged.
One of the problems contributing to the current disengagement of the average fund member, is knowing where to find a good superannuation fund.
To this end, the ATO will develop a new, interactive, online super comparison tool which will rank MySuper products by fees and investment returns, provide links to super fund websites, and prompt members to consolidate multiple funds.
And there's more. From July 1, 2021, APRA will conduct benchmarking tests on the net investment performance of MySuper products, which will make it easier for members to compare the fees and investment performance of super funds in the market.
This will create more competition, lower fees, and lead to the demise of some funds that have been under-performing for decades.
There are further strategies to clean up underperforming funds. A fund that is deemed to be underperforming will be required to inform its members of its underperformance by October 1, 2021.
At this time, members must also be provided with information about the super comparison tool. Funds that underperform on two consecutive annual benchmarking tests will not be permitted to accept new members until a further annual test shows they are no longer underperforming.
By July 1, 2022, the annual performance test will be extended to other superannuation products. As yet no detail has been announced, but one could expect that self-managed superannuation funds will fall under this umbrella. This would be a great outcome.
Many self-managed super funds seriously underperform, often because their trustees are unskilled at investing, or because they haven't got a clue about how to measure their own funds' performance.
In short, I think the reforms are fantastic. They offer realistic ways for members to become more engaged, access better information about fund performance, and so make better choices. This could be worth hundreds of thousands of dollars to them when they retire.
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Noel answers your money questions
My husband and I had a $3000 credit card account in both our names for many years. He died recently and when Westpac was notified of his death, they closed the account, as he was the main cardholder.
I assumed I would be able to get a credit card in my own name, but apparently I am not eligible, as I am told by the bank that a card could put me in "severe financial stress"!
Westpac wrote "We are required to not look at a customer's assets, only the actual income they receive each month."
My husband suffered with dementia for two years, so obviously for at least that time, and in fact somewhat longer, I was the only person using and paying for the card without problems.
My husbands RAD has been repaid to his estate, so I now have $430,000 in bank accounts. Is it reasonable that I am not eligible for a credit card? I cannot imagine I am the only widow or widower in such a situation.
I think it's scandalous that a person with almost $500,000 in the bank, and who has been handling the family finances for years due to her husband's illness is being refused a credit card by any lending organisation.
One would think there would be a big opportunity for some smart lender to start offering credit cards to retired people with substantial assets who are being refused credit due to the application being handled by a computer and not a person.
Until that happens the simple solution is a debit card which has no annual fee and can still be used to make purchases. The good news is that you can never get a shock when the credit card statement comes in because all a debit card can do is access money already held in your bank account.
My wife is 62 and works full time earning $100,000 a year. She has $485, 000 in super of which $187,000 is the taxable component, the balance is the tax-free component.
Is it possible for her to withdraw money from super now, and re-contribute it, or can it only be done after she retires. If it can be done now are there any tax implications?
Your wife is over 60 but as she is still working, she cannot withdraw her superannuation prior to age 65 unless she satisfies a condition of release, which requires her to retire or to resign from a job after turning 60 - it need not be her main job.
The maximum she could contribute by way of non-concessional contributions will be $300,000 by using the bring forward rules, so one option is to resign before age 65, then withdraw $300,000 and re-contribute it.
Alternatively, if she wishes to work past 65 at the same job you may consider a short-term loan of $300,000 just before her 65th birthday to make the contribution, and then repay the loan with a withdrawal of $300,000 when she turned 65. Provided your wife satisfies a condition of release there will not be a tax consequence in taking her benefit.
I am now 80 and planning to wind up my self-managed super fund within the next two years by paying out term deposits, in cash, as they mature.
However, I have one or two term deposits that will not mature within two years, can these be paid out as "in specie transfers"? I also have some shares.
Do, I have to sell these within the fund or can these also be "in specie" transfers?
The term deposits should currently be held in the name of the super fund as trustee. So first, check with the bank to see if they require the deposit to be held in the fund's name and for maturity.
It may be possible to persuade them to allow the deposit to be transferred from the fund to your own name with all other conditions unchanged.
If the bank won't come to the party, you may need to balance the cost of running the fund until the expiry of the term of the deposits against what you would lose by early withdrawal. If in any doubt check with the auditor of your SMSF.
Provided the shares are listed shares, I see no problem in the fund transferring them to you as an in specie payment.
Our solicitor is telling us that our two children should not use their enduring power of attorney to withdraw funds from our superannuation funds should we become ill, prior to our likely demise.
She claims the tax office would question the strategy. A retired solicitor friend thought that was wrong, and we wonder what your opinion is.
It is completely legal for the member of a superannuation fund to withdraw money from that fund once they have reached their preservation age and have satisfied a condition of release.
Furthermore, it is legal (subject to the actual details of what powers they were granted) for the attorney to take an action that would be legal for the grantee of the power of attorney to do.
I don't see any problem, as long as the money withdrawn goes into the account of the super fund member.
- Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. firstname.lastname@example.org