“Early withdrawal of super” may leave youth $100k worse-off in retirement
Federal Opposition steps up attacks on coronavirus support measures. This allows people in hardship to withdrawal some super early.
Labour said the Covid-19 economic crisis will greatly affect the younger generation. It estimates someone aged 25 who withdraws $20,000 may be up to $100,000 worse off in retirement.
Early Access to Super Scheme
The opposition is stepping up attacks on government’s handling of early access to superannuation scheme. This enables those dealing with economic effects of Covid-19 to withdraw up to $10,000. And, people were able to access up to $10,000 last financial year.
Shadow assistant treasurer, Stephen Jones, states “young Australians have borne the brunt of this crisis and will be forced to continue to pay the cost in years to come”.
“After accounting for inflation and cost of living, a 25-year-old who withdraws $20,000 will be $80,000 to $100,0000 worse off in retirement. A 35-year-old who withdraws $20,000 will be around $65,000 worse off. Collectively, under 35s will be at least $51 billion worse off at retirement.” Jones.
However, the Labor party released estimates a few days after it asked the auditor general to look into failures in implementation of the scheme.
Early Super Scheme Releases to date
The superannuation early release program has currently paid out $32bn from retirement savings. This is is set to top $42 billion by December. Former PM, Paul Keating raised concerns 590,000 accounts had been withdrawn to a zero balance.
While Opposition says it supports the original intent of the scheme, it argues there has been insufficient checks. This is especially true on whether people accessing superannuation are in real hardship. Retirement savings have been exposed to fraudulent scams.
“They’re going to look back on this and think of this superannuation policy as being as dumb as the introduction of cane toads in Australia.” Jones told reporters, “this is a bad policy that has been poorly implemented.”
Fraud & Identity Theft
Allegations of identity theft involving 150 Australians prompted Government to temporarily halt withdrawals in May. Police froze $120,000, believed to have been ripped-off from retirement savings.
An interview with Guardian Australia and Assistant Minister for Superannuation, Jane Hume, said people had always been able to access their superannuation. This is especially true in times of financial distress. Hume accused Keating of being out of touch with needs of those who have early access to super.
“[It’s] extraordinary that a man in a Zegna suit on a generous parliamentary pension can sneer at the decisions made by ordinary Australians who are facing some of the most challenging economic circumstances we’ve ever seen,” Hume said.
And, Labour’s figures were based on the party’s own internal modelling.
Some calculations are broadly similar to estimates published by the Grattan Institute in the past last week. The thinktank argued much of the losses to such individuals would be offset by larger government-funded pension payments.
Long Term Outcomes
The Grattan Institute calculated a 35-year-old who took out $20,000 allowed under early release of superannuation would see total funds fall by about $80,000. Also, the institute indicated a person’s total retirement income would fall by only $24,000 in today’s dollars.
Brendan Coates, Grattan Institute’s household finances program director, said government’s priority when launching the scheme was to get money out quickly. However, he said it made sense to tighten checking of applications to ensure people were genuinely eligible.
And, Coates reaffirmed Grattan’s position the amount of compulsory superannuation paid should not increase, because of potential effects on wages.
Superannuation Contribution Increases
Hume told Guardian Australia scheduled increases in compulsory superannuation from 9.5% to 12% were already legislated. It would be “very difficult to unwind”.
Government has “no plan” to abandon superannuation guarantee increases. However, it would be “irresponsible” not to consider trade-offs between superannuation increases and wages.
Therefore, the government is considering a retirement incomes review. This was submitted to the prime minister and treasurer in late July.
If you’d like to discuss whether the withdrawal is right for you, please contact the team at Wealth Planning Partners to assess your situation.
Melbourne continues to suffer under lockdowns. Stage 4 lockdowns announced by Victorian Premier, Daniel Andrews, along with shutdowns of particular industries, are said to have delivered a hammer blow to the Australian economy.
Federal Treasury forecasts require Prime Minister, Scott Morrison, to inject substantial amounts of money into Victoria. This is to avoid prolonging what is already classified as an economic disaster.
Australia’s second-biggest state, by population and economic output, has been in an increased state of reinforced lockdown conditions.It has been almost a month and will now go into a state of near hibernation for at least another six weeks or more.
The Federal government may need to provide financial aid to sustain Victorian economy to mitigate flow-on effects throughout Australia.
Jobkeeper
The down-turn in economic effects will be felt across Australia. Many who believe JobKeeper and JobSeeker support can be safely reduced at the end of September, (less than 60 days away) – is a dangerous fantasy. Melbournians continue to suffer the effects of long term lockdowns.
“That will mean there are less people working less shifts,” Andrews said. “There is less contact. There is less seeding of this virus from workplaces back into families and throughout the Victorian community.”
A third group will have to temporarily, but entirely, shut down. Andrews was not able to confirm which industries will fall into which category. However, COVID has spread through some industries such as meat works.Industries hardest hit have a high count in casual employees where people work within close proximity.
Andrews repeatedly said it is a huge cause for concern that casual workers keep turning up to work when they feel unwell because they fear they will never get another shift.
Stay at Home
The Victorian government offers $300 for people to stay home between getting tested and getting their results. This is enough to cover a few of their shifts.However, it raises the question for employees “if you’re thrown off the books, what are you supposed to do after?”
The Government has also provided a $1,500 payment for people who test positive, but take-up has been poor. Forcibly shutting high-risk industries should stem infections at work, but the cost to workers will be enormous.
The hit will also be felt through the economy across Australia as spending vanishes and the goods and services they supply diminish. People are losing jobs and it’s older workers who are feeling the effects the most.
Hospitality Sector
Workers in the devastated hospitality sector, who though they could get back to work, now have no chance. Workers hit hard by this new wave of chaos will need money from the government in order to eat and pay bills.
The question is: which government? The Victorian government’s finances must be nearing their limits. On the other hand, the Commonwealth apparently has oodles of spare capacity to borrow at the lowest interest rates in history.
Reach out
If you’d like to discuss your financial situation of eligibility for government payments, please reach out to your local Gold Coast financial planning team. The Advisers at Wealth Planning Partners are available on 07 5593 0855 between 9 and 5 most days.
The COVID-19 pandemic led to a global recession unfolding within the space of two months, with share markets collapsing and then staging a strong recovery. Markets have performed strongly even as we remain in the midst of tumultuous recession and a worsening global pandemic. So if we’re in the midst of a global recession, just why has the sharemarket rallied?
Two types of data have been used to help understand the collapse and rapid rally of share markets throughout the month of June:
Business survey data, aka Purchasing Manager Indices (PMI), are available for most economies and track expected future production.
High frequency (daily) data produced by technology applications track day-to-day travel and purchases by the household sector.
What does the business survey data tell us?
Substantial shifts in PMI surveys have been linked to changes in expected earnings that companies are predicting.This generally drives up share market returns. We have seen share markets rally as global PMI surveys lifted firmly through June.
This rapid recovery reflects massive support governments and central banks have provided, stepping in to stimulate economies.
Assessing technology platform data
High frequency data hasn’t been around for long but given its daily and weekly nature, it is a useful way to track economies. This also provides a good ‘check’ when looking at the lift in earnings expectations from the PMI data.
Transport
Looking at transport data, where increased movement indicates that economies are ‘opening up for business’ again, the data has broadly improved in-line with the bounce in PMIs. Apple transport data for driving and public transport has recovered from the mid-March low.
However, across regions the recovery has been uneven with Europe (except for the UK) and Japan showing the strongest recovery. Driving in the US has recovered above January levels.However, in contrast to the EU and Japan, public transport remains well below peak levels.
Consumer Data
When we assess high frequency consumer data in the US, we can see that consumption has recovered from a fall of around 35% post-lockdown (to be down around 7%).
In the last week of June, possibly reflecting the recent surge in cases, the improvement in both Apple mobility and consumer data has flattened in July to be down around 9%. The data tells that overall, the sharemarket rally has been supported by a solid bounce in key leading indicators since the lockdown collapse.
The US sharemarket has seen technology (growth) stocks lead the recovery. Other markets such as the EU and Japan should now build support. China’s economy appears to continue to recover from the pandemic, supporting markets, and has now overtaken recovery in US markets. The Australian share market, still recovering, has lost some momentum with the spike in COVID cases in Victoria.
What may be ahead?
Overall, the rapid and broad-based improvement in both PMIs and high frequency data appears to be flattening out in the month of July. The indicators suggest that markets have captured the initial bounce and are now consolidating. The next catalyst is likely to be the timing and effectiveness ofvaccines made broadly available. Initial news seems to be positive, but until there’s some greater clarity from the current vaccine trials, markets could track sideways or possibly weaken if the infection rates in the US continue to advance. In these challenging times it’s wise to seek professional financial advice if you’re feeling concerned about your investment strategy.
A qualified financial adviser can support you to assess your short and longer-term financial goals, which may help to provide peace of mind with regards to any concerns about the current market environment.
Financial abuse can affect clients of all backgrounds. It occurs in over 90% of all domestic violence cases. It is time for economic abuse training for advisers so they can better meet the challenge. Many advisers admit they unsure of the red flags of financial abuse. And sadly, what to do if they encounter it.
Economic abuse is when one person has control over another’s access to financial resources. It was recognised as abuse in the domestic abuse bill after calls to make it a criminal offence.
The course is a training and certification programme to help advisers understand the signs of abuse. And importantly, know how to assist clients. Therefore, the online training consists of video interviews with abuse survivors, advisers and lawyers. It includes reading materials, quiz questions, references and case studies. At the end, you will have devised your own internal Procedure to deal with cases you encounter.
Advisers need to “know their clients”
Wealth Planning Partners director Amanda Cassar says: “As advisers we must know our clients in order to give appropriate advice. And, economic abuse can occur regardless of socio-economic standing, education, race or ethnicity.”
Cassar, a global ambassador for financial abuse prevention and remediation, added: “There is no cookie-cutter approach to assisting clients. But, you can help reduce the risk of exposure to financial abuse through education. Also, through advising clients about protection options such as trusts or binding financial agreements.”
Certification
To achieve the Financial Abuse Specialist certification, course participants are invited to submit testing materials. The certification aims to help consumers identify advisers with the expertise and resources to support them.
Read more about economic abuse and how to get involved with this training programme in the magazine this week.
Have you heard about the reduction in Account Based Pensions and minimum draw downs?
Capital losses from falling share prices are realised only if the company goes into liquidation or the shares are sold. Reducing the amounts drawn down from account based pensions can help investments last longer.
Market Ups and Downs
Leaving investments intact may well offer the best chance to rebuild balances when markets pick up again, as they eventually do. But, this holding pattern can be hard for older people with account-based pensions. This is due to the requirement to draw a minimum income each year. For many people in residential care, this could be 7-15% of the balance at July 1.
Reductions in Account-Based Pension draw downs
Halving the draw-down amount is similar to a measure the government took as a result of the 2008 global financial crisis. The minimum income levels will again be halved for this financial year and next year. If the cash flow is not needed, people might wish to reduce their pension withdrawals. This could be especially so where higher Centrelink pensions may be likely.
Graham is 85 and living in an aged care facility. His account-based pension had a balance of $220,000 on July 1, 2019. He needed to draw 9% of that balance ($19,800) as income in 2019-20.
Graham regularly draws amounts of $1,650 a month, so he has already taken out $14,850 this year. Combined with share market drops and low interest rates, his pension balance has now dropped to $168,000.
Graham wants to minimise how much he draws. The halving of the minimums means he can stop drawing any more income this year and take out less next year as well as he’s also eligible for the two cash bonuses that will be paid of $750 each by Centrelink, as he’s on the Age Pension also.
If you’d like to discuss if halving your account based pension is a good idea, contact your Gold Coast advisers at Wealth Planning Partners on 07 5593 0855.
Interest rates have been falling faster and longer than deeming rates for Centrelink and Veterans’ Affairs recipients. This makes it practically impossible to earn current deeming rates from bank accounts. So, what to deeming rate cuts mean for pensioners?
High risk vs High Return
Higher-risk investments (in better markets) may potentially produce higher returns. But, these are often not appropriate for people in aged care and can cause anxiety in times of volatility.
Calls to cut deeming rates have been made as part of stimulus measures and rates will be cut by 0.75% from May 1,2020.
This means higher pension entitlements and lower aged care means-tested fees for some. But, pensions will not change if the maximum pension is already received or entitlements are calculated under the assets test.
The impact of Deeming rate cuts
Case Study
When Edna moved into residential care, she sold her home to pay her $400,000 accommodation cost. She was left with $350,000 in the bank. She receives an age pension of $849.31 a fortnight and pays $1,133.96 a fortnight in residential care fees.
When deeming rates change on May 1, her pension will increase to $899.77 and fees will decrease to $1108.65 a fortnight. This improves her income by $75.77 a fortnight, which helps with extra income to meet her expenses.
Cash bonus
Aged Care residents who receive a means-tested pension (Centrelink/Veterans’ Affairs) or hold either a Commonwealth Seniors Health Card or Veterans Gold Card will receive two $750 cash payments as a boost to income. Awesome!
As a bonus, this money is tax-free and not assessable. The first payment will be paid into bank accounts over the next two weeks. The second payment will be paid in late July so keep your eyes peeled for these.
If you’d like to learn more about what the deeming rates cuts mean for you, please reach out to the Gold Coast financial advisers at Wealth Planning Partners to review your personal situation.
Is it time to break free from being Asset rich and cash poor?
Here are four ways to boost your income…
Are you asset rich but cash poor? Turns out, you’re not alone. Data from the ABS (Australian Bureau of Statistics) shows that almost one-third of older Australians in low-income households were asset rich but cash poor.[1] Most wealth is tied up in illiquid assets, in particular the family home.
But you need not scrape by on so little. There are ways to try and boost your income.
1. TAKE ADVANTAGE OF YOUR PROPERTY
Selling up and moving to a cheaper and/or smaller house may free up money to help fund your retirement. But keep in mind that it might affect your benefits if you’re receiving an age pension. Some of the proceeds from the sale might be counted as assessable under the age pension assets test, and this might lead to a drastic cut in your pension. On the flip side, it can also help supplement any loss of pension.
2. SUPPLEMENT YOUR INCOME
Getting a part-time job or monetising a hobby, could boost your cash flow if you are retired. But remember that working when you have become eligible for an age pension may reduce your pension amount. Discuss with your adviser how you might optimise your retirement benefits while working part time. You are able to earn up to a certain amount before your Age Pension is impacted. Do you enjoy knitting, teaching or tutoring, baby-sitting, crafts, cleaning, handyman work or mowing? All can add a few dollars a week extra to your income.
3. RENT OUT YOUR PROPERTY
If you have extra space in your home, you may consider renting it out. Even just one room to a student or occasionally to holiday makers can made a difference. Or if you have another property, like a holiday home, you may look into listing it as a short-term rental? This could impact the tax you pay when you sell your home so you should seek advice on these strategies.
4. REVISIT YOUR INVESTMENTS
Have you invested in securities like shares and ETF’s? This may be a good time to meet with our financial adviser to review your portfolio. Your financial adviser may recommend strategies and ways to reduce your exposure to risk and volatility and possibly increase your income via dividends.
UNDERSTAND THE RISKS
You don’t have to be trapped in a situation where you are asset rich but cash poor. There are ways to boost your income, but keep in mind that some involve taking big risks. So, always seek financial advice to help you weigh your options and make decisions based on your own personal situation.
If you’d like to discuss your options, contact the Advisers at Wealth Planning Partners Robina to see if we can assist with your situation.
Did you know there are over 12[1] million Australians with a single superannuation account? There is also $13.8[2] billion in ‘lost super’. Is some of that yours?
Find it
Moved house over the years? Changed jobs during your career? Don’t know where your teenage self stashed your super? Pretty sure you’ve lost track of some accounts along the way? It’s easy enough to track it down. If you have a MyGov account, log in and link to the ATO. Then, you’ll be able to find superannuation linked to your name and tax file number easily enough here.
Consider Combining it
So, you want to save on fees, reduce your paperwork, keep track of your hard earned money, and grow your retirement fund? But, ensure you seek professional financial advice first to make sure combining is beneficial for you. However, there may be some drawbacks to combining if your health has changed and you have insurances in your existing fund. Your Advisers at Wealth Planning Partners can assist with advice on combining superannuation funds.
Ask your financial adviser
Many websites offer to help find and combine your super, including MyGov. It is quick, easy and free. You can ask your financial adviser for help; check with your existing superannuation provider or the Australian Tax Office. If you want to do a bit of research yourself, check out the ASIC MoneySmart website too.
Grow it
A professional financial adviser can help you find an appropriate superannuation fund that will grow your hard-earned funds. We can work out whether you are invested in line with your preferred risk profile. This can help manage the ‘sleep at night’ test in times of market movements. Also, Advisers can review the fees you are paying and check historical returns. And, we can help to ensure you have enough income for retirement. The sooner you nail it, the better!
Want to break free from being asset rich and cash poor? Turns out, you’re not alone! Data from the ABS (Australian Bureau of Statistics) shows almost one-third of older Australians in low-income households were asset rich but cash poor.[1] Most of their wealth was tied up in illiquid assets. In particular the family home.
But, there’s no need to scrape by on so little. There are ways to try boost your income.
1. DOWNSIZE YOUR PROPERTY
Selling up and moving to a cheaper house may free up wealth to help fund retirement. But, do keep in mind that it might affect benefits if you’re receiving a Centrelink Age Pension. Some of the proceeds from the sale might be counted as assessable under the Assets Test. This could lead to a drastic cut in your pension if you suddenly acquire additional cash.
2. SUPPLEMENT YOUR INCOME
Getting a part-time job or cashing in on a hobby could boost your cash flow if you are retired . But remember that working when you have become eligible for an age pension may reduce your pension amount under the income test. It’s best to discuss with your adviser how you might optimise your retirement benefits while working part time.
3. RENT OUT YOUR PROPERTY
If you have extra space in your home, such as a spare room or two, you may consider renting it out, either full time or on a part-time basis. Or if you have another property, like a holiday home, you may look into listing it as a short-term student or holiday rental. This too could impact the tax you pay when you sell your home so you should seek advice on these strategies.
4. REVISIT YOUR INVESTMENTS
Have you invested in securities? With cash rates at an historical low, this may be a good time to meet with a financial adviser to review your portfolio. Your financial adviser may recommend strategies and ways to increase income and/or reduce your exposure to risk and volatility in the event of market movements.
UNDERSTAND THE RISKS and BREAK FREE
You don’t have to be trapped in a situation where you are always asset rich but cash poor. There are ways to boost your income, but keep in mind that some involve taking big risks. So seek financial advice to help you weigh your options and make decisions based on your on personal financial situation.
The Advisers at Wealth Planning Partners in Robina are ready to help you with financial advice tailored to your financial situation.
The $10k cash call: Why large payments are on the scrapheap
Opposition is mounting against a federal government bill to ban cash payments over $10,000, the $10K Cash Call. This raises concerns it will push customers into the clutches of banks or other financial institutions. The Currency (Restrictions on the Use of Cash) Bill 2019, passed through the House of Representatives on Thursday. This Bill is designed to crack down on criminal money laundering. “We know large amounts of cash are essential to the business model of criminal gangs,” says Assistant Treasurer Michael Sukkar.”Gangs launder the cash from the proceeds of manufacturing and selling drugs and other serious crimes through the legitimate economy. The cash limit will make it harder for them to do so.”
Amendments to The Bill
On Thursday, Labor’s shadow assistant treasurer Stephen Jones pushed for an amendment to the bill. This “recognises the importance of cash for conducting transactions around Australia” following “a lot of concern within the community about the impact of this bill”.
Independent MP Andrew Wilkie flagged concerns the measure will push customers into the banking system. Especially given the impending threat of negative interest rates.
“An interesting line of argument, which I think has some merit, is: if Australia does eventually reach negative interest rates, cash will assume new importance. But this bill will diminish the ability of people to use cash,” Wilkie said.
“For the most part, people now take advantage of online and phone banking services.” But, she acknowledged “the fine and possible jail sentence for innocent people who still have a preference to use cash.”
In the same vein, Finn Dorney of Shadforth Financial Group says “a move to reduce the amount of cash transactions over time will only benefit Australians. However, there is no argument that some cash transactions can be linked with criminal behaviour. This does not account for all transactions of this type. Therefore, careful consideration needs to be given to the implementation of such an extreme change in legislation.”
