With the federal budget upon us, it’s an ideal time to run a check through your financial house, in anticipation of likely changes, arising from Tuesday’s announcements.
While it’s all but impossible to predict the detail, I am going out on a limb to suggest that changes to super are on the agenda.
A no brainer, right?
Maybe changes to super aren’t unexpected. I mean, the rules around super seem to change all the time, don’t they? It’s virtually a given that super will feature somewhere in the federal budget every year.
So much so that a financial planner can have trouble keeping up, which means it can be tough going for the average punter looking to make the most of what they’ve got put away for their long awaited retirement.
The bottom line is: it can be hard to stay abreast of changes AND capitalise on those changes to make sure your nest egg isn’t adversely affected.
And it’s why I found myself feeling nervous when I read the pre-budget news coming from Canberra in the lead up.
It could be argued I’m just a typical conservative financial planner getting a rush of budget blues or, maybe something else is going on.
I think it’s the latter.
Pre-budget, federal Treasurer, Scott Morrison suggested the government would be introducing what represent some pretty big changes to super rules.
The significance of these changes is they have the potential to leave one group of people particularly vulnerable and exposed. And it’s not a demographic that necessarily has a voice, at least not in the way other groups do, or have in the past.
What’s on the table?
Although it won’t be clear until the dust settles later this week, but what Treasurer Morrison is proposing is this:
Instead of imposing higher tax rates on super contributions made by people earning $300k or upwards, Mr Morrison is proposing this upper earnings limit is reduced to $180k.
This has a dual impact.
It means the people who meet that earnings limit (yes, the ones in the middle) for whom it is harder (but necessary) to make additional contributions to super will be disincentivised from doing so.
I mean, it just doesn’t make sense to save and be taxed at a higher rate for doing so. What’s more, the funds they do have in super will be taxed at a higher rate.
Even with the best intentions and desire to structure their available funds well, these people are going to meet challenges under Mr Morrison’s proposed changes.
To add to their double bind dilemma, these people in the middle won’t be able to fall back upon the pension, because it is common knowledge the downward pressure on the pension’s availability will continue.
They really are stuck in the middle, between the proverbial rock and a hard place.
Are you stuck in the middle?
This group that will be most affected by these legislative changes are the people in the middle.
I know what you mean. Who are these people? We just don’t hear about them. They’re not in the super rich or social welfare poor bracket.
They can probably be best described as the people who have put in the hard yards over extended working careers and want to be smart about how they manage and structure their retirement funds.
The problem is, they don’t necessarily have a voice in the right forums.
Think about it this way. When changes to super happen and affect either of the extremes or ends of the wealth management spectrum, we tend to hear about it. The media is acutely tuned into their frequency and their issues get coverage.
Legislate for the uber wealthy and there’s a public outcry; legislate for the lower income earners, and the wealthy contend it’s Robin Hood management.
By stark contrast, if legislative changes for that group in the middle are made, well, you’ll probably just hear a big fat silence, which is what I am anticipating after this year’s budget.
Make no mistake, I’m no fan of extremes when it comes to legislation. Making rules that are clearly in favour of one demographic or wealth bracket over another is neither helpful nor sustainable. It only sets the pendulum up to swing back the other way at some later point.
The problem is, the pendulum doesn’t get to stop on the way through to give the people in the middle a voice, and it is these people who will be most affected by what Mr Morrison is proposing.
What’s my gut telling me?
This policy shift has the potential to impact a large demographic of the population upon whom we are expecting to fund their own retirement, but to do so without the tools they need to make that happen.
As a financial planner, I am genuinely concerned that not only does this group not have a voice, I am also concerned they don’t know what they don’t know. I am also worried, they won’t act at the right time. Which is now.
Ultimately, the impact of this lack of knowledge will affect their quality of life in retirement in ways that don’t show up in the other demographics I mentioned above. Not only won’t they not have enough in their super, they won’t have the fallback of the pension, which is available to others now.
It is not alarmist to suggest that legislation affecting the super of our population’s largest working demographic may be passed before these people have even had time to catch the budget debrief in the next morning’s paper. This is a reality.
These people may very well miss out. Not because they’re irresponsible or don’t care or because they’re waiting for hand out.
It’s simply because they’re stuck in the middle. This means a post-budget super check up really does make more than just good sense.
If you think your super might be affected by changes to super legislation from this year’s budget, please call me or one of Rothgard’s other financial advisors to assess your particular circumstances.
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