HOW WILL THE NEW SUPER CHANGES AFFECT YOU?
There are four changes to your superannuation that came into force on July 1st and whilst none of them may affect your super, you need to make sure, just in case. Each of these changes is designed to prevent your super from being eroded, which for some people will make a big difference to their balance. Let’s take a look at each of these changes one by one.
1. Your insurance might be cancelled
If you haven’t made any contributions to your super for 16 months or more, any insurance attached to your super will be cancelled. This change can apply to many retirees or sole traders who no longer make super contributions. This change is designed to prevent people paying unknowingly for multiple insurances on multiple super funds, so it saves you money.
If you only have one super fund but haven’t made any contributions for at least 16 months, you need to inform your fund if you want to keep the insurance policy; if you have multiple super funds, you need to decide quickly which of the insurance policies you want to keep (if any) and inform your fund.
It’s important to decide whether you want to keep one of these insurance policies, and if so, which one. Insurance depends on many different life factors, one of which is - what does the policy actually cover? However, if you already have an insurance policy separate to your superannuation, you may simply want to let the super insurance lapse.
2. Super fees capped
If your super balance is less than $6000 at the end of the year, you can end up spending a lot of that money in administration fees. So this change caps the fees you can be charged by your fund to 3% of the balance, saving you money on your super.
3. Inactive accounts transferred to the ATO
If you account has less than a $6000 balance and has been inactive for at least 16 months (meaning you haven’t made any contributions to your fund), the balance will be transferred to the ATO. This change is designed to prevent people from having multiple inactive super accounts that eat up their fees; rolling them all into one account is a much better strategy.
The ATO will search for your active super account and roll the balance of your inactive accounts into it, unless you don’t have an active account. In this case, the ATO will retain your super balance, until you notice it’s gone missing!
4. Exit fees have been terminated
If you want to leave your super fund, there will no longer be any exit fees charged for terminating your account. This change is designed to make it easier and more financially viable for people to move their balances from one fund to another without paying an exit fee that some see as a penalty.
If you are concerned by any of these changes or you are still confused and unsure what to do, call me (Amanda McCall) on 07 3356 6929 or book your appointment online.
WHAT CAN WOMEN DO TO IMPROVE THEIR SUPER IN RETIREMENT?
Most women realise that they won’t have as much superannuation as men when they retire, regardless of their marital status and whether they have children or not. Statistics released by the Australian Government in 2018 declared that on average, women have nearly 40% less super than men at retirement, although the gap has narrowed slightly in the past year.
When you add that to the fact that on average, women tend to live longer than men, it makes a woman’s financial situation in retirement, quite precarious. Maybe you have seen in the news recently that an increasing number of older women are finding it difficult to manage financially, and in fact, many are becoming homeless? Why is this happening?
Why do women have less superannuation than men?
Whether or not you live well in retirement, generally comes down to how much superannuation you have in your account. If you need to rely solely on the retirement pension, then even if you own your home outright, your lifestyle will still begin to suffer - because the pension isn’t a large amount of money.
This leaves you will using your super as a backstop to supplement the pension and if you rent, then you will be in an even more difficult position. The problem is that women who take maternity leave don’t accrue as much super as men, and when they return to work part-time, they once again lose out on employee super contributions (because they earn less part-time).
The fact that many women are not paid as much as men in a similar career only adds to the issue. The result being, that women have less super than men when they retire.
How can women make up this loss in super?
The best solution is to pay additional voluntary contributions every week, as early as possible. For example, if you pay an extra $50 into your super every week, this can make up for the loss if you return to work part-time after starting a family. If you don’t start a family, then these extra payments will add up to a nice payout when you retire.
If you don’t return to work after having a baby or return only part-time, your super will suffer from lower contributions for many years (until you work full-time again), but at this point you may be able to take advantage of the low income super contributions (currently $500 if you earn $37,000 or less a year). Also, if your spouse decides to pay into your fund as well as their own, then he or she will receive tax off-sets.
Of course, as far as your super is concerned, returning to work early and working full-time is the ideal course of action, but this isn’t an option for many mums.
Also, remember that if you divorce, you may be entitled to some of your spouse’s super as it’s considered a shared asset of the marriage. In this instance, you need to obtain legal advice, because you will likely need all the super you can get when you retire. Don’t just leave it to a handshake with your ex, instead take it to court and ensure that your financial future is secured.
If you are concerned that your super won’t be enough when you retire, even if you are in your 20s, 30s, 40s or 50s right now, call me (Amanda McCall) on 07 3356 6929 or book your appointment online.
WHAT ARE THE ADVANTAGES AND DISADVANTAGES OF A BUY NOW, PAY LATER SERVICE?
Buy Now Pay Later services have been heavily advertised in both the media and retail stores, but how good are they and should you make use of them?
What are Buy Now Pay Later services?
These are financial services that let you buy a product today, but delay payment to a later date. Over the past five years, their popularity has grown significantly and include Afterpay, zipPay, Oxipay and Openpay.
These services are offered at the point of sale in many retail stores, as well as being an option for online shoppers. You will need to provide your credit card or bank account details so that payments can be automatically deducted and you may be required to pay an initial deposit on the purchase.
What are the advantages of a Buy Now Pay Later service?
The first advantage of these services is that you can take home your purchases and pay them off over a period of time. You can quickly set up one of these accounts and use it straight away, compared with the time it takes to apply for other forms of credit.
As with credit cards and debit cards, Buy Now Pay Later services are fully integrated with a store’s checkout systems, so it is just as easy to use this service, as your EFTPOS card. As long as you make your repayments on time, there are no fees or interest to pay, and the payments are automatically deducted from your nominated account.
What are the disadvantages of a Buy Now Pay Later service?
As mentioned above, the initial advantage of these services is that they allow you to defer payments, but so do credit cards. The biggest difference between a Buy Now Pay Later service and a credit card is that credit cards are regulated under the National Credit Act and providers are required to comply with this Act.
Buy Now Pay Later services who are not covered by this Act, don’t need to enquire about your financial situation to ensure that you can afford the repayments. You might consider this an advantage, but in reality, borrowing more than you can afford to comfortably repay is a distinct disadvantage of Buy Now Pay Later services.
Also, since most credit cards charge interest on purchases, an interest free service, such as Afterpay, can be very seductive. Clearly an interest free option is a good financial move, but not if it encourages you to make impulse purchases that you can’t afford.
If you don’t have enough money in your account to make a payment when it is due, you will incur a late fee, which for Afterpay is $10 with another $7 if you don’t make the payment within another seven days. If you have used the Buy Now Pay Later service to purchase items that you really can’t afford, these late payments can quickly add up and might even total more than the actual cost of the item!
If you already struggle to control your finances, then these Buy Now Pay Later services are not the best option for you. For help organising your finances, call me (Amanda McCall) on 07 3356 6929 or book your appointment online.
WHAT DOES THE 2019 FEDERAL BUDGET MEAN FOR YOUR SUPERANNUATION & RETIREMENT?
Despite the release of the latest Federal Budget in early April, it’s fair to say that unless the Coalition remains in power, none of Josh Frydenberg’s budget promises may come to fruition. This is because the new government will likely write their own budget.
Nevertheless, it’s worth taking a look at the 2019 Federal budget, because if the Coalition remains in government after May’s election, many people could benefit from Frydenberg’s proposals.
Specifically, changes to personal income tax and superannuation may help you to better manage your finances both today and in retirement.
Personal income tax changes
Australians have waited a long time for some positive changes to their personal income tax rates and with the expected budget surplus in 2019-20, Frydenberg has finally delivered some potential relief.
Tax relief was also the focus of the 2018 Federal budget where the government set in place a plan that would provide significant relief to low and middle income workers. Aimed at both raising and simplifying the tax brackets, the first stage of the government’s plan was to give workers earning $125,333 or less per year a tax offset when then submit their tax returns for the current financial year (2018/19).
This tax offset will be graded according to how much you actually earn with the maximum offset being given to those earning between $48,001 and $90,000 per year. In Frydenberg’s 2019 budget, these tax offsets will be increased, however the maximum offset will still be received by the $48,001 and $90,000 earners.
As an example, if you are in the middle tax bracket ($48,001 and $90,000) you should receive the full tax offset of $1080 when you submit your tax return this year.
Unfortunately, we will have to wait until 2022 to see the 19% tax bracket increase from $41,000 to $45,000 and in 2024, the 32.5% tax rate will be lowered to 30% for workers earning between $45,001 and $200,000. This means that you will have much more money in your pay packet, depending on your annual income.
It also means however, that this may only happen if the government doesn’t change in May, following the election.
Changes to superannuation are mainly focused on helping Aussies close to retirement top up their voluntary super contributions. So in 2020, if you are 65 or 66 years of age, you can make voluntary payments to your super without meeting the Work Test requirements (at least 40 hours work in 30 consecutive days). You will also be able to top up your super by paying three years of non-concessionary contributions in a single year, but that stops you from making any more after tax contributions in the next following years.
Frydenberg has also proposed that the age limit to receive super contributions by your spouse will be increased from 69 to 74 years of age.
If you need help sorting through how these changes will affect your super and retirement, call me (Amanda McCall) on 07 3356 6929 or book your appointment online.
MONEY DOESN'T BUY YOU HAPPINESS - OR DOES IT?
Most of us wouldn’t turn a lotto win away, because after all, we can all do with more money! Whether more money makes us happy however, is a contentious issue, but it’s likely to depend on our definition of happiness.
If you want the world to be a perfect place and everything to go your way, then more money won’t turn your life into a nirvana, but if you want a life free of financial worries, then more money can certainly achieve your goals.
Defining what makes you happy
The issue of happiness and how it is defined was at the core of a recent study by Australian Unity. Their 2015 report – What Makes Us Happy? – revealed that happiness depends on three factors: a sense of purpose, good relationships and how much control you have over your finances.
Immediately, you can see that your financial situation is only one part of how you measure your happiness, so unless you have a sense of purpose and great relationships, even winning the lotto won’t make you totally happy!
Clearly, relationships and a sense of purpose are questions for another time, what I want to deal with here, is how you can help yourself to feel better about your finances. After all, if you feel more secure financially, then that can reduce any pressure on your intimate relationships and help you to discover a sense of purpose.
How much money do you need to feel happier?
When you look at the Australian Unity Report, you can see that the less money you have, the happier you become when you get more! For example, if you change jobs and your income increases from $40,000 to $55,000 per year, your level of happiness increases.
The amount of money that makes you happy is all relative however, because, as you can imagine, someone earning $200,000 a year won’t be hugely impressed with a $15,000 a year pay rise. In other words, their level of happiness won’t be increased as much as the person earning $55,000 - they will need a bigger pay rise to make them feel happier.
This example clearly indicates that it’s not the amount of money that makes you happy, it’s how it makes you feel. So if you can feel more in control of your finances, it should make you feel happier!
How can you feel more financially secure?
Whatever your current financial situation, feeling more in control of your finances will make you happier. Paying bills on time and having a pot of emergency money to hand are two ways that you can improve your financial wellbeing, and the key to financial security is to learn how to budget.
Initiating a savings plan and not borrowing money for your living expenses are both important steps that will keep you in control on a daily basis. After all, the more money you borrow for items that are not assets, the more money you fritter away and the less happier you become. To be happy with your finances, you need to be in control!
If you need help organising your financial future, call me (Amanda McCall) on 07 3356 6929 or book your appointment online.