The Australian government passed several key reforms in its 2020-21 budget that took place on 1 July 2021. The initiative is called Super Reforms – Your Future, Your Super measure. One of the most important reforms includes the first increase in the super guarantee since 2014. The super guarantee rate increases 2.5 percent in .05 increments each year until 2025.
Why the Gradual Increase?
Increasing the super guarantee gradually was decided to give businesses more time to incorporate the changes. Your employer will pay the super guarantee into your retirement account, and gradual absorption of the 2.5 percent makes things easier on businesses. Businesses that have superannuation inclusion in their remuneration packages can shift funds paid as the guarantee from your take-home pay, so you might make less as of 1 July 2021.
The extra funds that the super guarantee increase adds to your retirement account averages $19,000 for the 0.5 percent increase.
That amounts to nearly $100,000 extra in your retirement account after the entire 2.5 percent increase is applied. The previous cap for super guarantee was 9.5 percent, and the increase will gradually raise the guarantee to 12 percent.
Other Superannuation Reforms
Sydney financial planners can expect to stay busy while responding to client questions about the latest superannuation reforms. One of the most interesting reforms is the correction of a long-standing problem. For the past three decades, those defaulting on choosing super funds had no recourse to rate the performance of their default retirement investment vehicle. That changed in a major way on 1 July, 2021.
Naming and Shaming
You now have a choice of default investment vehicles, and you can switch your funds to a better performing investment. The government has also issued a comparison tool called Your Super. Approximately 80 investment programs are named and compared on Your Super. You can monitor the performance of top Super Funds, compare performance features that most concern you and change your investment vehicle.
How to Compare Super Funds Wisely
It’s always best not to make snap decisions based on what might be a temporary performance issue. Sydney financial planners generally recommend reviewing your investment’s over the course of at least five years.
When comparing the performance of various Super Funds, it’s important to take into account performance, fees, insurance coverage, return on investment, services and the relative level of risk. Some investors prefer solid returns over higher risk, higher reward scenarios. You should always consider whether you’ll lose your insurance coverage after changing Super Funds because insurance coverage is a big part of mitigating overall investment risks.
Other Investment Options
You can also choose non-my super investment options – especially if you value high growth and can tolerate a certain amount of risk. You might choose some of the Super Fund investments that have other areas where you can invest besides the Super Fund. Your comparison tool will probably not cover these alternatives, but you still check on the fund’s performance as part of your due diligence.
Tax Considerations
The benefits of superannuation can be taxed at three different stages: the contributions stage, earnings stage and benefits stage. If you wait until you’re 60 or older to receive benefits, all your benefits are tax-free. You can also decide to keep your funds in the accumulation stage or convert only part of your funds to fund your pension.
Stapling Saves You from Red Tape
One of the other reforms in superannuation includes changes in self-management of your Super Fund membership. There are new contribution caps, and you can now staple your history of Super Fund membership to your account. In the past, each time you changed jobs, you earned a new account. Stapling past records to your account simplifies management, reduces administrative tasks and prevents the necessity of creating millions of new accounts.
You can keep the same account as you move from job to job, which makes self-management a breeze, and reduces administrative costs and headaches of trying to manage multiple accounts.
Saying on Top of Reforms
You can expect regular reforms in superannuation policies, and the best way to manage these reforms is hiring a financial advisor to keep you informed about changes and advise you on your investment strategy. The latest reforms, according to Josh Frydenberg, will save Australian citizens $17.9 billion in 10 years. Stapling will prevent millions of unnecessary accounts, and other reforms will reduce fees, improve fund performance and give investors expanded investment choices.
Oracle Advisory Group 